Download VTU MBA 4th Sem 16MBAMM403-E-Marketing E marketing Management Module 5 -Important Notes

Download VTU (Visvesvaraya Technological University) MBA 4th Semester (Fourth Semester) 16MBAMM403-E-Marketing E marketing Management Module 5 Important Lecture Notes (MBA Study Material Notes)

Module 5
E-marketing Management
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
Search Engine Optimization (SEO)
? SEO is unique to the online environment: 47% of Web users said that the most common
way they find products or online stores is through search engines.
? The top 10 results to a search query get 78% more traffic than subsequent listings, many
firms use SEO to be sure their site is high on the list.
? How?
? Register with the top and niche search engines for their industry. Although search
engine robots are constantly looking for new Web pages, registration accelerates
the process.
? Use key words that describe their sites in hidden HTML tags located by search
engines (Meta tags).
? Craft the text and titles on their pages to reflect these topic areas, including
different spellings of key words that users might type into the search engine.
? Remember that many search engines charge a slotting fee for top positions?13% said
they pay for the links or clicks-throughs.
? To stay high on the listing of search results, SEO strategies change almost daily.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
Search Engine Optimization (SEO)
? SEO is unique to the online environment: 47% of Web users said that the most common
way they find products or online stores is through search engines.
? The top 10 results to a search query get 78% more traffic than subsequent listings, many
firms use SEO to be sure their site is high on the list.
? How?
? Register with the top and niche search engines for their industry. Although search
engine robots are constantly looking for new Web pages, registration accelerates
the process.
? Use key words that describe their sites in hidden HTML tags located by search
engines (Meta tags).
? Craft the text and titles on their pages to reflect these topic areas, including
different spellings of key words that users might type into the search engine.
? Remember that many search engines charge a slotting fee for top positions?13% said
they pay for the links or clicks-throughs.
? To stay high on the listing of search results, SEO strategies change almost daily.
Method Percent
Changing meta-tags 61
Changing page titles 44
Reciprocal linking 32
Purchasing multiple domain names 28
Multiple home pages (doorways) 21
Hiding keywords in background 18
Paid links/ pay per click 13
None of the above 13
Methods Used to Improve Search Engine Rankings
Source: Adapted from www.iconocast.com
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
Search Engine Optimization (SEO)
? SEO is unique to the online environment: 47% of Web users said that the most common
way they find products or online stores is through search engines.
? The top 10 results to a search query get 78% more traffic than subsequent listings, many
firms use SEO to be sure their site is high on the list.
? How?
? Register with the top and niche search engines for their industry. Although search
engine robots are constantly looking for new Web pages, registration accelerates
the process.
? Use key words that describe their sites in hidden HTML tags located by search
engines (Meta tags).
? Craft the text and titles on their pages to reflect these topic areas, including
different spellings of key words that users might type into the search engine.
? Remember that many search engines charge a slotting fee for top positions?13% said
they pay for the links or clicks-throughs.
? To stay high on the listing of search results, SEO strategies change almost daily.
Method Percent
Changing meta-tags 61
Changing page titles 44
Reciprocal linking 32
Purchasing multiple domain names 28
Multiple home pages (doorways) 21
Hiding keywords in background 18
Paid links/ pay per click 13
None of the above 13
Methods Used to Improve Search Engine Rankings
Source: Adapted from www.iconocast.com
Community Building
? Sites build community through online chat rooms, discussion groups, and online events.
? Amazon allows users to:
? Write their own book reviews,
? Read and rate the reviews of others.
? Online interest communities
= One of the Net?s big promises that is being fulfilled for users and capitalized upon by
marketers
= For business communities & consumer groups.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
Search Engine Optimization (SEO)
? SEO is unique to the online environment: 47% of Web users said that the most common
way they find products or online stores is through search engines.
? The top 10 results to a search query get 78% more traffic than subsequent listings, many
firms use SEO to be sure their site is high on the list.
? How?
? Register with the top and niche search engines for their industry. Although search
engine robots are constantly looking for new Web pages, registration accelerates
the process.
? Use key words that describe their sites in hidden HTML tags located by search
engines (Meta tags).
? Craft the text and titles on their pages to reflect these topic areas, including
different spellings of key words that users might type into the search engine.
? Remember that many search engines charge a slotting fee for top positions?13% said
they pay for the links or clicks-throughs.
? To stay high on the listing of search results, SEO strategies change almost daily.
Method Percent
Changing meta-tags 61
Changing page titles 44
Reciprocal linking 32
Purchasing multiple domain names 28
Multiple home pages (doorways) 21
Hiding keywords in background 18
Paid links/ pay per click 13
None of the above 13
Methods Used to Improve Search Engine Rankings
Source: Adapted from www.iconocast.com
Community Building
? Sites build community through online chat rooms, discussion groups, and online events.
? Amazon allows users to:
? Write their own book reviews,
? Read and rate the reviews of others.
? Online interest communities
= One of the Net?s big promises that is being fulfilled for users and capitalized upon by
marketers
= For business communities & consumer groups.
Online Events
? Online events are designed to generate user interest and draw traffic to a site.
? Most memorable commercial online event = in 1999 when Victoria Secret held a Web-
based fashion show.
?Announced it in advertisements in the New York Times, Super Bowl football game,
and other traditional media.
?1.2 million visitors, an 82% increase in Web traffic and the firm?s Web servers could
not handle all the traffic. As bandwidth problems disappear, expect more online
multimedia events.
? Companies and organizations can hold seminars, workshops, and discussions online:
? Companies use forthcoming events as legitimate reasons to e-mail potential clients
as well as their existing clients.
? It saves considerable time and cost compared to holding or attending a physical
seminar.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
Search Engine Optimization (SEO)
? SEO is unique to the online environment: 47% of Web users said that the most common
way they find products or online stores is through search engines.
? The top 10 results to a search query get 78% more traffic than subsequent listings, many
firms use SEO to be sure their site is high on the list.
? How?
? Register with the top and niche search engines for their industry. Although search
engine robots are constantly looking for new Web pages, registration accelerates
the process.
? Use key words that describe their sites in hidden HTML tags located by search
engines (Meta tags).
? Craft the text and titles on their pages to reflect these topic areas, including
different spellings of key words that users might type into the search engine.
? Remember that many search engines charge a slotting fee for top positions?13% said
they pay for the links or clicks-throughs.
? To stay high on the listing of search results, SEO strategies change almost daily.
Method Percent
Changing meta-tags 61
Changing page titles 44
Reciprocal linking 32
Purchasing multiple domain names 28
Multiple home pages (doorways) 21
Hiding keywords in background 18
Paid links/ pay per click 13
None of the above 13
Methods Used to Improve Search Engine Rankings
Source: Adapted from www.iconocast.com
Community Building
? Sites build community through online chat rooms, discussion groups, and online events.
? Amazon allows users to:
? Write their own book reviews,
? Read and rate the reviews of others.
? Online interest communities
= One of the Net?s big promises that is being fulfilled for users and capitalized upon by
marketers
= For business communities & consumer groups.
Online Events
? Online events are designed to generate user interest and draw traffic to a site.
? Most memorable commercial online event = in 1999 when Victoria Secret held a Web-
based fashion show.
?Announced it in advertisements in the New York Times, Super Bowl football game,
and other traditional media.
?1.2 million visitors, an 82% increase in Web traffic and the firm?s Web servers could
not handle all the traffic. As bandwidth problems disappear, expect more online
multimedia events.
? Companies and organizations can hold seminars, workshops, and discussions online:
? Companies use forthcoming events as legitimate reasons to e-mail potential clients
as well as their existing clients.
? It saves considerable time and cost compared to holding or attending a physical
seminar.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
Search Engine Optimization (SEO)
? SEO is unique to the online environment: 47% of Web users said that the most common
way they find products or online stores is through search engines.
? The top 10 results to a search query get 78% more traffic than subsequent listings, many
firms use SEO to be sure their site is high on the list.
? How?
? Register with the top and niche search engines for their industry. Although search
engine robots are constantly looking for new Web pages, registration accelerates
the process.
? Use key words that describe their sites in hidden HTML tags located by search
engines (Meta tags).
? Craft the text and titles on their pages to reflect these topic areas, including
different spellings of key words that users might type into the search engine.
? Remember that many search engines charge a slotting fee for top positions?13% said
they pay for the links or clicks-throughs.
? To stay high on the listing of search results, SEO strategies change almost daily.
Method Percent
Changing meta-tags 61
Changing page titles 44
Reciprocal linking 32
Purchasing multiple domain names 28
Multiple home pages (doorways) 21
Hiding keywords in background 18
Paid links/ pay per click 13
None of the above 13
Methods Used to Improve Search Engine Rankings
Source: Adapted from www.iconocast.com
Community Building
? Sites build community through online chat rooms, discussion groups, and online events.
? Amazon allows users to:
? Write their own book reviews,
? Read and rate the reviews of others.
? Online interest communities
= One of the Net?s big promises that is being fulfilled for users and capitalized upon by
marketers
= For business communities & consumer groups.
Online Events
? Online events are designed to generate user interest and draw traffic to a site.
? Most memorable commercial online event = in 1999 when Victoria Secret held a Web-
based fashion show.
?Announced it in advertisements in the New York Times, Super Bowl football game,
and other traditional media.
?1.2 million visitors, an 82% increase in Web traffic and the firm?s Web servers could
not handle all the traffic. As bandwidth problems disappear, expect more online
multimedia events.
? Companies and organizations can hold seminars, workshops, and discussions online:
? Companies use forthcoming events as legitimate reasons to e-mail potential clients
as well as their existing clients.
? It saves considerable time and cost compared to holding or attending a physical
seminar.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the
movement of products from producer to end user.
? Include coupons, rebates, product sampling, contests,
sweepstakes, and premiums (free or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the
Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion
dollar promotional market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than
with direct mail.
?Online tactics are directed primarily to consumers / most offline sales
promotion tactics are directed to businesses in the distribution channel.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
Search Engine Optimization (SEO)
? SEO is unique to the online environment: 47% of Web users said that the most common
way they find products or online stores is through search engines.
? The top 10 results to a search query get 78% more traffic than subsequent listings, many
firms use SEO to be sure their site is high on the list.
? How?
? Register with the top and niche search engines for their industry. Although search
engine robots are constantly looking for new Web pages, registration accelerates
the process.
? Use key words that describe their sites in hidden HTML tags located by search
engines (Meta tags).
? Craft the text and titles on their pages to reflect these topic areas, including
different spellings of key words that users might type into the search engine.
? Remember that many search engines charge a slotting fee for top positions?13% said
they pay for the links or clicks-throughs.
? To stay high on the listing of search results, SEO strategies change almost daily.
Method Percent
Changing meta-tags 61
Changing page titles 44
Reciprocal linking 32
Purchasing multiple domain names 28
Multiple home pages (doorways) 21
Hiding keywords in background 18
Paid links/ pay per click 13
None of the above 13
Methods Used to Improve Search Engine Rankings
Source: Adapted from www.iconocast.com
Community Building
? Sites build community through online chat rooms, discussion groups, and online events.
? Amazon allows users to:
? Write their own book reviews,
? Read and rate the reviews of others.
? Online interest communities
= One of the Net?s big promises that is being fulfilled for users and capitalized upon by
marketers
= For business communities & consumer groups.
Online Events
? Online events are designed to generate user interest and draw traffic to a site.
? Most memorable commercial online event = in 1999 when Victoria Secret held a Web-
based fashion show.
?Announced it in advertisements in the New York Times, Super Bowl football game,
and other traditional media.
?1.2 million visitors, an 82% increase in Web traffic and the firm?s Web servers could
not handle all the traffic. As bandwidth problems disappear, expect more online
multimedia events.
? Companies and organizations can hold seminars, workshops, and discussions online:
? Companies use forthcoming events as legitimate reasons to e-mail potential clients
as well as their existing clients.
? It saves considerable time and cost compared to holding or attending a physical
seminar.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the
movement of products from producer to end user.
? Include coupons, rebates, product sampling, contests,
sweepstakes, and premiums (free or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the
Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion
dollar promotional market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than
with direct mail.
?Online tactics are directed primarily to consumers / most offline sales
promotion tactics are directed to businesses in the distribution channel.
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available on
the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers and
18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or traditional
advertising, coupon redemption increases substantially.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
Search Engine Optimization (SEO)
? SEO is unique to the online environment: 47% of Web users said that the most common
way they find products or online stores is through search engines.
? The top 10 results to a search query get 78% more traffic than subsequent listings, many
firms use SEO to be sure their site is high on the list.
? How?
? Register with the top and niche search engines for their industry. Although search
engine robots are constantly looking for new Web pages, registration accelerates
the process.
? Use key words that describe their sites in hidden HTML tags located by search
engines (Meta tags).
? Craft the text and titles on their pages to reflect these topic areas, including
different spellings of key words that users might type into the search engine.
? Remember that many search engines charge a slotting fee for top positions?13% said
they pay for the links or clicks-throughs.
? To stay high on the listing of search results, SEO strategies change almost daily.
Method Percent
Changing meta-tags 61
Changing page titles 44
Reciprocal linking 32
Purchasing multiple domain names 28
Multiple home pages (doorways) 21
Hiding keywords in background 18
Paid links/ pay per click 13
None of the above 13
Methods Used to Improve Search Engine Rankings
Source: Adapted from www.iconocast.com
Community Building
? Sites build community through online chat rooms, discussion groups, and online events.
? Amazon allows users to:
? Write their own book reviews,
? Read and rate the reviews of others.
? Online interest communities
= One of the Net?s big promises that is being fulfilled for users and capitalized upon by
marketers
= For business communities & consumer groups.
Online Events
? Online events are designed to generate user interest and draw traffic to a site.
? Most memorable commercial online event = in 1999 when Victoria Secret held a Web-
based fashion show.
?Announced it in advertisements in the New York Times, Super Bowl football game,
and other traditional media.
?1.2 million visitors, an 82% increase in Web traffic and the firm?s Web servers could
not handle all the traffic. As bandwidth problems disappear, expect more online
multimedia events.
? Companies and organizations can hold seminars, workshops, and discussions online:
? Companies use forthcoming events as legitimate reasons to e-mail potential clients
as well as their existing clients.
? It saves considerable time and cost compared to holding or attending a physical
seminar.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the
movement of products from producer to end user.
? Include coupons, rebates, product sampling, contests,
sweepstakes, and premiums (free or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the
Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion
dollar promotional market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than
with direct mail.
?Online tactics are directed primarily to consumers / most offline sales
promotion tactics are directed to businesses in the distribution channel.
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available on
the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers and
18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or traditional
advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
Search Engine Optimization (SEO)
? SEO is unique to the online environment: 47% of Web users said that the most common
way they find products or online stores is through search engines.
? The top 10 results to a search query get 78% more traffic than subsequent listings, many
firms use SEO to be sure their site is high on the list.
? How?
? Register with the top and niche search engines for their industry. Although search
engine robots are constantly looking for new Web pages, registration accelerates
the process.
? Use key words that describe their sites in hidden HTML tags located by search
engines (Meta tags).
? Craft the text and titles on their pages to reflect these topic areas, including
different spellings of key words that users might type into the search engine.
? Remember that many search engines charge a slotting fee for top positions?13% said
they pay for the links or clicks-throughs.
? To stay high on the listing of search results, SEO strategies change almost daily.
Method Percent
Changing meta-tags 61
Changing page titles 44
Reciprocal linking 32
Purchasing multiple domain names 28
Multiple home pages (doorways) 21
Hiding keywords in background 18
Paid links/ pay per click 13
None of the above 13
Methods Used to Improve Search Engine Rankings
Source: Adapted from www.iconocast.com
Community Building
? Sites build community through online chat rooms, discussion groups, and online events.
? Amazon allows users to:
? Write their own book reviews,
? Read and rate the reviews of others.
? Online interest communities
= One of the Net?s big promises that is being fulfilled for users and capitalized upon by
marketers
= For business communities & consumer groups.
Online Events
? Online events are designed to generate user interest and draw traffic to a site.
? Most memorable commercial online event = in 1999 when Victoria Secret held a Web-
based fashion show.
?Announced it in advertisements in the New York Times, Super Bowl football game,
and other traditional media.
?1.2 million visitors, an 82% increase in Web traffic and the firm?s Web servers could
not handle all the traffic. As bandwidth problems disappear, expect more online
multimedia events.
? Companies and organizations can hold seminars, workshops, and discussions online:
? Companies use forthcoming events as legitimate reasons to e-mail potential clients
as well as their existing clients.
? It saves considerable time and cost compared to holding or attending a physical
seminar.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the
movement of products from producer to end user.
? Include coupons, rebates, product sampling, contests,
sweepstakes, and premiums (free or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the
Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion
dollar promotional market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than
with direct mail.
?Online tactics are directed primarily to consumers / most offline sales
promotion tactics are directed to businesses in the distribution channel.
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available on
the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers and
18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or traditional
advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
Search Engine Optimization (SEO)
? SEO is unique to the online environment: 47% of Web users said that the most common
way they find products or online stores is through search engines.
? The top 10 results to a search query get 78% more traffic than subsequent listings, many
firms use SEO to be sure their site is high on the list.
? How?
? Register with the top and niche search engines for their industry. Although search
engine robots are constantly looking for new Web pages, registration accelerates
the process.
? Use key words that describe their sites in hidden HTML tags located by search
engines (Meta tags).
? Craft the text and titles on their pages to reflect these topic areas, including
different spellings of key words that users might type into the search engine.
? Remember that many search engines charge a slotting fee for top positions?13% said
they pay for the links or clicks-throughs.
? To stay high on the listing of search results, SEO strategies change almost daily.
Method Percent
Changing meta-tags 61
Changing page titles 44
Reciprocal linking 32
Purchasing multiple domain names 28
Multiple home pages (doorways) 21
Hiding keywords in background 18
Paid links/ pay per click 13
None of the above 13
Methods Used to Improve Search Engine Rankings
Source: Adapted from www.iconocast.com
Community Building
? Sites build community through online chat rooms, discussion groups, and online events.
? Amazon allows users to:
? Write their own book reviews,
? Read and rate the reviews of others.
? Online interest communities
= One of the Net?s big promises that is being fulfilled for users and capitalized upon by
marketers
= For business communities & consumer groups.
Online Events
? Online events are designed to generate user interest and draw traffic to a site.
? Most memorable commercial online event = in 1999 when Victoria Secret held a Web-
based fashion show.
?Announced it in advertisements in the New York Times, Super Bowl football game,
and other traditional media.
?1.2 million visitors, an 82% increase in Web traffic and the firm?s Web servers could
not handle all the traffic. As bandwidth problems disappear, expect more online
multimedia events.
? Companies and organizations can hold seminars, workshops, and discussions online:
? Companies use forthcoming events as legitimate reasons to e-mail potential clients
as well as their existing clients.
? It saves considerable time and cost compared to holding or attending a physical
seminar.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the
movement of products from producer to end user.
? Include coupons, rebates, product sampling, contests,
sweepstakes, and premiums (free or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the
Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion
dollar promotional market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than
with direct mail.
?Online tactics are directed primarily to consumers / most offline sales
promotion tactics are directed to businesses in the distribution channel.
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available on
the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers and
18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or traditional
advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip ticket
given away every hour, 24/7, for six weeks.
FirstRanker.com - FirstRanker's Choice
Module 5
E-marketing Management
? https://www.youtube.com/watch?v=314Vptu4F6U
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Many Products Capitalize
on Internet Properties
? A product:
? A bundle of benefits that satisfies the needs of
organizations/consumers and for which they are willing to
exchange money or other items of value.
? Items such as tangible goods, services, ideas, people, and
places.
Many Products Capitalize
on Internet Properties
? May be classified by the purpose for which they are purchased:
?Consumer products = purchased by an individual for personal
consumption.
?Businesses sell products to consumers in the business-to-
consumer (B2C) market.
?Consumers sell products to one another in the consumer-to-
consumer (C2C) market.
?Industrial products = used in the operation of an
organization, as components for manufacture into final
product, or for resale (B2B market).
Many Products Capitalize
on Internet Properties
? Some new products are unique to the Internet (search engines).
? Other products use the Internet as a new distribution channel +add
unique technology-enabled services (books).
? With the Internet?s properties of market deconstruction, customer
control, and other e-marketing trends:
? Many challenges,
? A plethora of new opportunities.
? The success of Classmates.com demonstrates how a new and purely
online product can use the Internet?s properties to build a successful
brand.
Many Products Capitalize
on Internet Properties
? To create new products:
? Research to determine what is important to customers,
? Design strategies to deliver more value than do competitors.
? In line with the Sources, Databases, and Strategy model, tier two strategies
involve the marketing mix 4Ps and customer relationship management (CRM).
? The process of designing these strategies is closely tied to the tactics used to
implement them.
? The marketing mix (product, price, distribution, marketing communication) +
customer relationship management (CRM) work together to produce relational
and transactional outcomes with consumers.
Marketing Mix and CRM Strategies and Tactics for Relational and Transactional Outcomes
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Creating Customer Value Online
? Never has competition for online customer attention and dollars
been more fierce.

To succeed, firms must employ that result in
Customer value = Benefits ? Costs.
Creating Customer Value Online
? But what exactly is value?
? The entire product experience:
? Customer?s first awareness of a product,
? All customer touch points (including the Web site experience and e-mail
from a firm),
? The actual product usage and postpurchase customer service,
? The compliments a consumer gets from friends while using the product.
? Value is defined wholly by the customer.
? Value involves customer expectations; if the actual product experience falls
short of their expectations, customers will be disappointed.
? Value is applied at all price levels.

Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Online Benefits
? The Internet technology brings a new set of desired benefits:
? Effective Web navigation,
? Quick download speed,
? Clear site organization,
? Attractive and useful site design,
? Secure transactions & privacy,
? Free information or services,
? User-friendly Web browsing and e-mail reading.
? BUT as Internet technology evolves, user needs change, and the opportunities
expand.
? Marketers must make five general product decisions that comprise its bundle
of benefits to meet customer needs: attributes, branding, support services,
labeling, and packaging.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Attributes
? Product attributes include:
? Overall quality: ?you get what you pay for? = higher and consistent
quality generally means higher prices,
? Specific features: Include such elements as color, taste, style, size,
and speed of service.
? Benefits are the same features from a user perspective (i.e., what will
the attribute do to solve problems or meet needs and wants?).
? For example, Yahoo! provides a list of Web site categories (attribute),
which helps users find things quickly online (benefit).
?Product benefits are key components in the value proposition.
Attributes
? The Internet increases customer benefits in many ways that have
revolutionized marketing practice:
? The move from atoms to bits: media, music, software, and other digital products
are presented on the Web.
? Product customization:
? Tangible products such as laptop computers can be sold alone or with many additional
hardware and software items or services to provide additional benefits at a higher
price.
? Intangible products, online research firms can offer many different business services in
a variety of combinations.
? Information products can be reconfigured and personalized very easily,
quickly, and cheaply, as compared to manufactured products.
Attributes
? The Internet offers users the unique opportunity to customize
products automatically without leaving their keyboards.
? User personalization is another form of customization:
?Through Web site registration and other techniques, Web sites
can:
? Greet users by name,
? Suggest product offerings of interest based on previous
purchases,
? Amazon.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Branding
? A brand includes a name (McDonald?s), a symbol (golden arches), or
other identifying information.
? When a firm registers that information with the Patent Office, it
becomes a trademark and is legally protected from imitation.
? According to the U.S. government, ?a trademark is either a word,
phrase, symbol or design, or combination of words, phrases,
symbols or designs, that identifies and distinguishes the source of
the goods or services of one party from those of others?.
Branding
? A brand is:
? A promise to customers,
? A brand name + its image = the benefits a user desires,
? A way to establish trust for the customer.
?Important online, because of concern over security and privacy
issues,
?Trustworthy brand names add to customer-perceived benefits =
higher prices,
?The value proposition.
Branding
? Customers and prospects develop brand images based on every brand contact:
? One-way media such as advertising and packaging,
? Two-way communication such as conversations with the firm?s customer service or
sales people on the phone, at trade shows, on Web sites, or in company-initiated e-
mail.
? When using the Internet, a firm must be sure that its online messages and employee e-
mails convey a positive brand image that is consistent with messages from all other
contact points.
Branding
? Companies creating new products for online sale face several
branding decisions:
? Whether to apply existing brand names or create new brand
names for new products,
? Whether to lend their brand name as a cobrand with other
firms,
? What domain name to use for the Web site.
Branding
? 7 components for building a great global brand:
1.Research your corporate constituencies. Information is
critical for global brand building.
2.Understand your business. Set guidelines based on global
objectives.
3.Advance the vision. Decide on the desired reputation,
create a strategy to support it, and develop a strategic
positioning document.
4.Release the power of communications. All company
communication should work together to promote the brand.
Branding
? 7 components for building a great global brand:
5. Set up your communications infrastructure. Build a
communication council with the firm?s advertising, public
relations, investor relations, and human resource
specialists, both inside and outside the firm.
6. Include your employees in the message mix. This is
especially important in a time of PR crisis.
7. Measure performance. Track progress toward goals and
determine communication effectiveness.
Using Existing Brand Names
On the Web
? An existing brand name can be used for any new product:
? Makes sense when the brand is well-known + has strong brand equity (value).
? For example, Amazon added music CDs, videos, software, electronics, and more
to its product mix. When products with offline sales introduce online extensions
choosing to use the same brand name (e.g., The New York Times).
? Some firms may not want to use the same brand name online and offline, for
several reasons:
? If the new product or channel is risky, the firm does not want to jeopardize the
brand?s good name by associating with a product failure.
? A powerful Internet success might inadvertently reposition the offline brand.
? Sometimes the firm wants to change the name slightly for the new market or
channel, as a way of differentiating the online brand from the offline brand.
Creating New Brands
for Internet Marketing
? If an organization wants to create a new Internet brand, a good
name is very important.
? Good brand names should:
? Suggest something about the product (e.g., www.Classmates.com),
? Differentiate the product from competitors (e.g., www.gurl.com),
? Be capable of legal protection.
? On the Internet, a brand name should be:
? Short,
? Memorable,
? Easy to spell,
? Capable of translating well into other languages.
Co-branding
? Co-branding :
? When two different companies put their brand names on the
same product.
? Common on the Internet and is a good way for firms to build
synergy through expertise and brand recognition.
? For example:
? Sports Illustrated now co-brands with CNN as CNNSI.
? Even the Web site address displays the cobrand:
sportsillustrated.cnn.com.
Internet Domain Names
? Organizations spend a lot of time and money developing powerful, unique brand
names for strong brand equity.
?Using the company trademark or brand name in the Web address helps
consumers quickly find the site.
?For example, www.coca-cola.com.
? Anatomy of a URL:
? A URL (Uniform Resource Locator) = Web site address = IP address
(Internet Protocol) = domain name.
? Categorization scheme, similar to telephone area codes, that helps
computer users find other computers on the Internet network.
? Are numbers, but because users can more easily remember names, a
domain name server translates back and forth.
Internet Domain Names
? A domain name contains several levels:
? http:// = hypertext protocol = The browser should expect data using the hypertext
protocol?meaning documents that are linked together using hyperlinks.
? www = world wide web = Not necessary and most commercial sites register their
name both with and without it.
? dell = second level domain = The name of the company or the brand name.
? com = top level domain = Firms must first decide in which top level domain to register.
Most businesses in the U.S. want .com,
? The Internet Corporation for Assigned Names and Numbers (ICANN):
? A non-profit corporation,
? A committee of experts to make decisions about protocol and domain name
assignment, registration,
? Approves all new top level names such as the latest: biz, .info, .pro, .name, .coop,
.aero, and .museum.
Domain Designation Top Level Domain Name Number of Hosts
(millions)
net Networks 47.8
com Commercial 44.5
edu Educational 7.8
jp Japan 7.1
ca Canada 2.9
de Germany 2.7
uk United Kingdom 2.5
au Australia 2.3
it Italy 2.3
us United States 2.1
Largest Top Level Domain Names in January 2002 and Number of Hosts
Source: Data from Network Wizards (www.isc.org)
Registering a New Domain Name
? VeriSign provides domain registering services for a mere $70/2
years/name.

? Problems:
? More than 97% of words in the dictionary already registered
as domain names,
? The online name a firm desires may not be available.
?A dictionary name is not necessarily the best option because it
already has a meaning attached to it = difficult to build a
competitive advantage.
Registering a New Domain Name
? What happens if the firm name has been registered by someone else?
? Come up with alternative names: DeltaComm, a software developer was
the first to register www.delta.com before Delta Airlines (originally
www.delta-air.com),
? Buy the name from the currently registered holder.
? Many creative Netizens register lots of popular names and offer them for
sale at prices of up to millions of dollars:
? GreatDomains.com allows users to buy and sell popular domain
names.
Have an Extra $1.5 Million to Spare? Buy www.ad.com.
Source: GreatDomains.com
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Support Services
? Customer support (during and after purchases):
? Is a critical component in the value proposition,
? Need knowledgeable customer service representatives,
? Is critical for some technical products for installation,
maintenance problems, product guarantees, and service
warranties.
? Customer service:
? Works to increase customer satisfaction with the firm?s
products,
? Is a product benefit = an important part of customer
relationship management.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Labeling
? Product labels:
? Identify brand names, sponsoring firms, and product ingredients,
? Provide often instructions for use and promotional materials,
? On tangible products = create product recognition and influence
decision behavior at the point of purchase,
? For online services = provides terms of product usage, product
features, and other information comprise online.
Labeling
? Labeling at Web sites, customers can read:
? How to install and use a software downloaded from the Internet,
? Extensive legal information about copyright use on their Web pages,
? Online labeling can serve many of the same purposes on the Web as offline
?Many brick-and-mortar businesses display the Better Business Bureau logo
on their doors to give the customer a sense of confidence and trust.
? The TRUSTe privacy shield: If firms agree to certain terms of use regarding
privacy of customer information collected at their site, they affix the
TRUSTe seal to their Web sites as part of a label.
Microsoft Terms of Use Label
Source: www.microsoft.com. Copyright ? 2000 Microsoft Corporation, One Microsoft Way, Redmond,
Washington 98052-6399 U.S.A. All rights reserved.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Co-design
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
E-Marketing Enhanced Product Development
? The move from atoms to bits adds complexity to online product offers.
? Developers must:
? Combine digital text, graphics, video, and audio, and use new Internet
delivery systems.
? Must integrate front-end customer service operations with back-end data
collection + fulfillment methods to deliver product.
?This creates steep learning curves for traditional firms.
?E-marketers need to consider several factors that affect product
development and product mix strategies with new technologies.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Customer Codesign
? The power shift to buyers allows for many unusual business partnerships
and for both business and consumer collaboration.
?Partners are forming synergistic clusters to help design customer products that
deliver value.
? Internet technology allows this type of collaboration to occur
electronically across international borders as well.
? Customer interaction in the early and late stages of product development
can actually increase product success.
?This is especially true when product codesign occurs with what is called the ?lead
user? of a product.
?This is a key person who uses the product and often innovates himself to solve
product use problems as they occur.
Company Software
Development
Define objectives Integration of user input Stabilize
software
Begin product design
Beta 0
Internal
testing
Specs
complete
Final
release
Customer Feature design and coding with input from
customers March - July
Beta Testing Beta 1 Beta 2 Beta 3 Beta 4 Beta 5 Beta 6
Netscape
3.0
Jan Feb Mar Apr May Jun Jul Aug
Customer Co-design of Netscape Navigator 3.0
Source: Adapted from Iansiti and MacCormack (2001)
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Electronic Input
? Good marketers look everywhere for customer feedback to improve products.
? With the increase of Web sites inviting customer product ratings, the
proliferation of e-mail ?word of mouse,? and the speed and reach of the Net,
customers are quick to spread the word about product strengths and
weaknesses.
? Savvy firms monitor customer input electronically and refine products to meet
customers? needs.
? Companies hire electronic clipping services?firms to scan the Internet looking
for company and product discussion = the electronic version of traditional
clipping services that read print media and clip out articles mentioning the firm
and its brands.
? The electronic input process:
? Is similar to the use of marketing research to support product development;
? The scale is much larger because many customers worldwide can be involved and provide
quick feedback.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Web Content Development
? On the Web, ?content is king.?
?Customers visit Web sites for information, entertainment, and to buy products.
?Content attracts users and keeps them returning.
? 5 tips for ?screaming content:?
? Stay fresh. Update the site every day and at least once on the weekend. That takes a huge
commitment!
? Be relevant and unique. Deliver highly focused content that is differentiated from
competitive site content.
? Make it easy to find. Users want to find information or products immediately. Also, don?t
include hyperlinks to other sites for content because users don?t often return after they leave.
? Serve a smorgasbord of content. Integrate current news and facts with longer features
and commentary. Include interactive material relevant to the site, such as quizzes, calculators,
searches, and so forth. Vary the format to include multimedia.
? Deliver content everywhere. This includes Web sites, wireless devices, and
special networks.
Web Content Development
? A new breed of syndicated content providers has emerged to serve Web
developers:
? Is parallel to the Associated Press that feeds news to local and national newspapers and
magazines.
? Includes stock quotes, breaking news, sports updates, weather information, and more?in all
formats from text to video.
? An interesting trend involves users who want text-based content only:
? A small but growing group of Web users does not want the distraction of video, sound,
animation, and other non-text items,
? They favor simple text information,
? They block advertising content with special software and know exactly what they want online,
? They do not like HTML e-mail.
?Important because mobile handheld devices use mostly text content.
?Web content providers might consider how to pare down the features in special areas for
these users + charge a subscription fee for the content.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other
Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
Internet Properties Spur Other Opportunities
? Market deconstruction created a disaggregation and reaggregation of
product and service components to form unusual new products and firms:
? These firms provide bundles of benefits difficult to achieve before the Internet.
? The AutoMall Online.
? The Internet is a great information equalizer:
? Fierce competition + lots of product imitation + short product life cycles.
? In this environment, product differentiation is the key to keep from becoming a price-
driven commodity industry.
?Online auctions: Not long after eBay came online, Amazon.com and others began offering
auctions.
?Short product life cycle: when Frank Sinatra died, BMG?s five-person new-product
development team created a lifetime tribute and a series of product offerings for the Web
site in six short hours.
?Firms must respond quickly to new technology or lose.
?Innovation online is still rewarded.
Overview
Many Products Capitalize on Internet Properties
Creating Customer Value Online
Online Benefits
Attributes
Branding
Support Services
Labeling
E-Marketing Enhanced Product Development
Customer Codesign
Electronic Input
Web Content Development
Internet Properties Spur Other Opportunities
New-Product Strategies for E-Marketing
A Taxonomy for Internet Products
New-Product Trends
Value Chain Automation
Promotion
Product Configuration
Brokerages
Customer Service
Distribution
Relationship Marketing
Outsourcing
Information Sharing
Centralizing Information
Access
Multimedia
Assistive Technologies
Three Types of Convergence
New-Product Strategies
for E-Marketing
? Many new products were introduced by ?one-pony? firms:
? = The firm was built around the first successful product,
? Netscape, Yahoo!, and Classmates.
? Other firms added Internet products to an already successful
product mix:
? Microsoft.
Product Mix Strategies
? How can marketers integrate hot product ideas into current product mixes?
There are 6 categories of new-product strategies based on marketing
objectives and other factors such as risk appetite, strength of current brand
names, resource availability, and competitive entries:
1. Discontinuous innovations are new-to-the-world products never seen
before.
? On the Internet = the first Web authoring software, cell phone/PDA
combination, shopping agent, and search engine.
? This strategy is quite risky, the potential rewards for success are great.
? E-marketers planning discontinuous innovations must remember that
their customers will have to learn and adopt new behaviors-things they
have not done before.
? The new behavior must be easy and the perceived benefits worthwhile.
Product Mix Strategies
2. New product lines are introduced when firms take an existing
brand name and create new products in a completely different
category.
? Microsoft created a new line when it introduced its Internet Explorer Web browser.
Because the Netscape browser was already available, Microsoft?s entry was not a
discontinuous innovation.
3. Additions to existing product lines occur when organizations add
a new flavor, size, or other variation to a current product line.
? The New York Times Direct is a slightly different version of the hard-copy edition,
adapted for online delivery. It is yet another product in The New York Times line, which
includes the daily paper, weekly book review, and others.
Product Mix Strategies
4. Improvements or revisions of existing products are introduced as
?new and improved? and, thus, replace the old product.
? Web-based e-mail systems improved on client-based e-mail systems such
as Eudora or Outlook because users could check and send e-mail from any
Web connected computer.
5. Repositioned products are current products that are either
targeted to different markets or promoted for new uses.
? Yahoo! began as a search directory on the Web and then repositioned itself
as a portal (an Internet entry point with many services).
6. Me-too lower-cost products are introduced to compete with
existing brands by offering a price advantage.
? When America Online and other ISPs were charging per hour rates for
Internet access, several other providers introduced unlimited use at flat
rate pricing for $19.95 per month.
A Word About ROI
? Need for performance metrics:
? As feedback so firms can assess the success of their e-marketing strategies
and tactics.
? When introducing new products, online or offline.
? (The expected product revenue over time is forecasted) ? (marketing and
other expenses) = an estimated ROI for new products prior to launch.
? Payout = the R & D and other initial costs will be recovered at a particular date
based on projected sales.
? Break-even date = when the product is projected to start making a profit.
? How long is acceptable? Internet projects had to break even within three
months or they would not get funded. Of course the exact timing varies by
industry.
?ROI and break-even are important metrics for selling new product ideas
internally and for measuring their success in the market.
Price-Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
The Internet Changes Pricing Strategies
? Price is:
? The amount of money charged for a product or service,
? The sum of all the values (such as money, time, energy, and psychic cost) that buyers
exchange for the benefits of having or using a good or service,
? Set by negotiation between buyers and sellers.
? Fixed price policies:
? One price for all buyers,
? A relatively modern idea = end of the nineteenth century,
? Arose with the development of large-scale retailing and mass production.
? Now, one hundred years later: Dynamic pricing
?The Internet is taking us back to an era of dynamic pricing: = Varying prices for individual customers
The Internet Changes Pricing Strategies
? In the past, the Internet was used for:
? Marketing communication benefits,
? Distribution channel benefits.
? BUT it has a huge potential to change pricing strategy.
? The Internet properties allow for price transparency = the
idea that both buyers and sellers can view all competitive
prices for items sold online.
?This feature would tend to commoditize products sold
online, making the Internet an efficient market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer and Seller Perspectives
? The meaning of price depends on the viewpoint of the
buyer and the seller.
? Each party to the exchange brings different needs and
objectives that help describe a fair price.
? In the end, both parties must agree or there is no sale.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Buyer View
? For the buyers: values = benefits ? costs
The Real Costs
? Today?s buyer must be quite sophisticated to understand even the simple
dollar cost of a product.
?The seller?s price may or may not include shipping, tax, and other seemingly
hidden elements (costs revealed online at the last screen of a shopping
experience).
?Promotion of a new pricing scheme for a long distance telephone company:
?Complex deals,
?Some carriers advertise ?$0.07 a minute, period.?
The Real Costs
? How about the time, energy, and psychic costs that add
to a buyer?s monetary costs?
? Sometimes:
? The Net is slow,
? Information is hard to find,
? Other technological problems,
?Users can spend more time and energy & become
frustrated (psychic cost).
The Real Costs
? Shopping agents will find the lowest prices online, but the
search adds to the time cost.
?A search for the lowest airfare at Orbitz.com or Travelocity.com can
be minimal compared to the dollar savings,
?BUT the same may not be true for a book price search.
? It depends on:
? The time it takes to search & the savings as a percentage of the item cost,
? How much familiarity and experience the buyer has with the search engine.
?As bandwidth increases, technology evolves, and firms
develop better online strategies, some of these costs will
decline.
Buyer Control
? The change in power from seller to buyer affects pricing.
? Reverse auction:
? Buyers set prices for new products and sellers decide whether or not to accept these
prices.
? Example = Priceline.com (n 2002 Priceline licensed its "Name Your Own Price" travel
system to eBay.)
? In the B2B market: buyers bid for excess inventory at exchanges + for
products at firms.
? In the B2G market :
? Government buyers put out a request for proposal for materials & labor needed,
? Businesses bid for the work,
? The government buyer selects the lowest price = having control over the exchange.
Buyer Control
? Buyer power online is based largely on the huge quantity of
information & product availability on the Web.
?Online buyers are becoming more sophisticated.
? Sellers are more willing to negotiate = giving power to buyers in
the exchange.
? Sellers realize that information technology can help them better
manage inventories & automate frequent price changes.
Buyer View
Buyers often enjoy many online cost savings:
? The Net is convenient:
? It is open 24/7 = users can research, shop, consume entertainment anytime.
? E-mail allows asynchronous communication among users at any location and prevents
?telephone tag? with sellers.
? The Net is fast:
? Users can order a product and receive it the following day.
? Self-service saves time:
? Customers can track shipments, pay bills, trade securities, check account balances, and
handle many other activities without waiting for sales reps.
? Users can request product information at Web sites and receive it immediately.
Buyer View
? One-stop shopping saves time:
? Increase customer convenience,
? AutoMall Online = partner with a number of firms to provide automobile price
comparisons, research about various models and manufacturers, financing and insurance
information, and service options.
? Integration saves time:
? Web portals ( Yahoo! and AOL) = allow users to quickly find many things they want online.
? Some sites allow users to create individualized Web pages with news, stock quotes,
weather, and other customized information.
? Automation saves energy:
? Customers value simplicity and ease BUT the Net makes some activities more complex,
technology can help.
? Customer computers can keep track of passwords for Web sites and to track previous
purchases at Web sites save time and energy.
Buyer View
? Some people prefer to order books from Amazon.com with overnight
delivery, knowing that:
? Amazon prices are often higher than other online booksellers,
? The book is in stock at a local bookstore,
? Overnight delivery costs quite a bit more.
? So, why?
?The Amazon brand name is trustworthy,
?These customers have had excellent previous experiences with Amazon,
?They are familiar with the site and can quickly find what they need,
?Those benefits and time/energy-saving features overcome the higher expense.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Seller View
? Price = the amount of money they receive from buyers.

? Pricing floor = seller costs for producing the good or service,
?Under, no profit is made,
?Above, marketers set a price to draw buyers from competing offers,
?Price - Cost = Profit
? Factors affecting pricing levels:
? Internal factors = the firm?s strengths and weaknesses from:
? Its SWOT analysis,
? Its overall pricing objectives,
? Its marketing mix strategy,
? The costs involved in producing and marketing the
product.
? External factors = the market structure & the buyer?s
perspective.
Internal Factors: Pricing Objectives
1.Profit-oriented objective (most common strategy) :
? Focuses on current profit maximization rather than long-term performance,
? First estimate what demand and costs will be at different prices,
? Then choose the price that will produce the maximum current profit, cash flow, ROI.
2.Market-oriented objective:
1. Building a larger customer base = lower costs & higher long-run profit,
?Low prices generally build market share.
?AOL broadband Internet connection services is low to increase market share.
2. Product-quality leadership = high price to cover higher performance quality and high cost of
R&D.
3. Negotiation and bidding.
3.Competition-based pricing objective:
? Price according to what competitors charge for similar products, paying less attention to the
company's own costs or to demand.
?When one airline drops prices, its competitors usually follow suit.
?The Internet gives firms quicker access to competitive price changes.
Internal Factors: Marketing Mix Strategy
? Successful companies use an integrated and consistent marketing mix strategy.
? Volvo = upscale brand image:
? Sells high priced automobiles through dealerships,
? Marketing communication = a Web site + offline,
? More than 80% of its customers shop online,
? Highly educated men + live in urban areas = configure a new Volvo on the Web
site, price it, + talk to dealers via e-mail ( Dealers close 10-15% of these leads).
?Volvo uses the Internet to generate sales leads, knowing that its customers are not
likely to buy a high priced item directly from the Internet.
? The Internet is one sales channel + must be used in concert with other marketing
mix elements.
? No proven rules or standard practices on how to price the same product for sale in
both online and offline channels.
Internal Factors: Information Technology Affects Costs
The Internet Puts Upward Pressure on Prices:
Reason of the dot-coms failure = expensive customer relationship management + other software
that did not generate new revenue to cover the sites? costs.
Factors that put upward pressure on Internet pricing:
1.Distribution:
? ?The last mile? problem = each product must be shipped separately to its
destination.
? Retailers pass shipping costs on to their customers & reveal it at the conclusion
of the order.
? Some vendors inflate the shipping cost to recoup some of the discount offered.
2.Affiliate programs:
? Affiliate sponsors reward the referring Web sites 7- 15% commission on each
reference that leads to a sale.
? This commission inflates the price of the item or lowers company profits.
Internal Factors: Information Technology Affects Costs
3.Site development and maintenance:
? Web site development and maintenance is not cheap.
? Development of a ?conservative? site = $10,000 - $100,000, an
?aggressive? site = $1 million or more.
? Maintenance = expensive, with hardware, software, and monthly Internet
connection costs.

4.Customer acquisition costs (CAC).
? The cost of acquiring new customers online is quite high,
? The average CAC for online retailers is $82.
? How many orders must a firm receive to recoup that cost, and at what
price? BUT customers are not nearly as brand loyal online as offline.
Internal Factors: Information Technology Affects Costs
The Internet Puts Downward Pressure on Prices:
1. Order processing?self-service:
? Customers fill out their own order forms = no order entry personnel & paper
processing.
? Average retail banking transaction costs $0.15 - $0.20 online versus $1.50 offline.
2. Just-in-time inventory:
? Electronic data interchange (EDI) drives down costs by coordinating value-chain
activities & allows for just-in-time (JIT) delivery of parts and reduced inventories.
? Some online retailers and offline retailers do not even hold inventory but buy in
response to customer orders.
3. Overhead:
? Online storefronts lower overhead costs = no rent for retail space & staff .
? Warehouses can be located in areas with low rents, low wages, low taxes, and
quick access to shipping hubs.
Internal Factors: Information Technology Affects Costs
4. Customer service:
? $15 - $20 in an offline call center versus $3 - $5 when customers help themselves
on the Internet.
5. Printing and mailing:
? No mail distribution & printing costs for their product catalogs.
? Once the catalog is placed online, access carries little or no incremental costs.
? The same holds true for e-mail promotions.
6. Digital product distribution costs:
? Distribution costs for digital products are extremely low in the Internet channel.
External Factors Affecting Online Pricing: Market Structure
Economists recognize 4 types of markets:
? Pure competition:
? Many buyers and sellers trading in a uniform commodity ( corn ).
? Product differentiation, and marketing communication play little or no role.
? Monopolistic competition:
? Many buyers and sellers trade over a range of prices.
? Sellers can differentiate their offers to buyers.
? Oligopolistic competition:
? A few sellers sensitive to each other?s pricing and marketing strategies.
? If a company drops its price, buyers will quickly switch to this supplier.
? Pure monopoly:
? This market consists of one seller whose prices are usually regulated by the government.
Efficient Markets Mean Loss of Pricing Control
The market structure distinction is extremely important for
online sellers because if price transparency eventually results in
a completely efficient market, sellers will have no control over
online prices?the result will be pure competition. One example
of a nearly-efficient market is the stock market.
External Factors Affecting Online Pricing: Efficient Markets
Efficient markets:
? Experience perfect price competition.
? Customers have equal access to information about products, prices, and
distribution.
? Lower prices, high price elasticity, frequent price changes, smaller price
changes, and narrow price dispersion.
? Commodity markets came close to being efficient until the government
intervened with controls.
? The Internet is close to an efficient markets but the behavior of
consumers on the Internet does not bear out all of the economists?
predictions.
External Factors Affecting Online Pricing: Efficient Markets
Is The Net an Efficient Market?
? The Net present all symptoms of efficient markets,
? Access to information through corporate Web sites, shopping agents, and
distribution channels.
? Products sold exhibit lower prices, high price elasticity, frequent price changes,
and smaller price changes.
? BUT do these factors actually make the Net an efficient market?
? Lower costs can result in lower prices for consumers,
? Technology enables buyers to evaluate and demand appealing prices.
? Research shows that online prices for books and CDs are indeed lower by 9% to
16%.
? Does that mean that all prices online are lower? No but many factors place a
downward pressure on Internet prices, contributing to efficiency.
Efficient Markets
? Shopping agents (www.pricescan.com):
? Facilitate consumer searches for low prices by displaying the results in a
comparative format.
? High price elasticity:
? Price elasticity refers to the variability of purchase behavior with changes in price.
? Leisure travel is very elastic: When the airlines engage in fare wars, consumers
snap up ticket inventories creating huge demand.
? For books and CDs, the online market is more elastic than the offline market.
? Reverse auctions:
? Allow buyers to name their price and have sellers try to match that price.
? This pits sellers against one another and usually drives prices down.
Efficient Markets
? Tax-free zones:
? Most online retailing takes place across state lines,
?Buyers pay no sales taxes on purchases,
?Reduce total out-of-pocket expenditures by 5-8% per transaction.
? Venture capital:
? Venture capital/angel investors finance many Internet companies,
? They take a long-term view & are willing to sustain short-term losses (<5
years) = time to establish brand equity + grab market share,
? No profit-maximization pricing objective = can offer lower price,
? BUT changes are coming ( the dot-com crash +the 5-year time frames are
over for many early Net firms).
Shopping Agent Site Millions of Visitors
Dealtime.com 7.4
Bizrate.com comparison shopping 5.7
Mysimon.com 2.7
Pricegrabber.com* 2.2
All other search sites combined 0.2
Users of One or More Comparison Shopping Sites 18.2
Monthly Users of the Internet 119.5
* Represents an aggregation of commonly owned/branded domain names.
Retail Shopping Comparison in July 2002 Source: Data from com Score Media Metrics MySimon Shopping Agent Search Results Source: www.mysimon.com
Example of a VCR search at mySimon.com. Since the results are listed in order with the lowest price first, outlets that
are not price competitive risk being left off of the first screen and might as well be invisible.
Efficient Markets
? Competition:
? Fierce and very visible.
? Frequent price changes (than the offline market) :
? Online suppliers want to attract price-sensitive consumers,
? Vendors alter their pricing to place higher on the results provided
by shopping agents,
? In a computerized environment firms can offer volume discounts in
smaller increments,
? Experimentation is easy online, firms see how demand changes +
adjust & change prices as competition and other factors emerge.
Efficient Markets
? Lower costs:
? Result in either higher profits or lower prices.
? Smaller price change increments:
? Smallest offline price change = $0.35 / online = $0.01,
? Price-sensitive consumers may respond to even a small price
advantage,
? Shopping agents rank their results by price (even small
advantage earn a higher ranking),
? It is difficult to change prices offline = retailers wait until the
need for a price change is even greater.
Is The Net an Inefficient Market?
? The Web does not act like an efficient market with respect to narrow price dispersion:
?Prices tend to equalize in commodities markets,
?Online retailer branding and other benefits justify price differences in the minds of
customers.
? Greater spread was found between high/low prices online versus high/low prices
offline for the same items:33% for books and 25% for CDs,
?The online channel is still not completely mature = many buyers do not know about or use
shopping agents.
?Related to the way goods are priced online as well as delivery options, time-sensitive
shoppers, branding, differentiation, switching costs, and second-generation shopping agents.
? How goods are priced online:
? Offline = fixed prices,
? Online = goods are available for a fixed, a dynamically updated, or an auction price,
? PLUS, shipping & special services make it difficult to compare products.
Is The Net an Inefficient Market?
? Delivery options:
? The same product delivered under differing conditions (time and place) have
different value to the consumer.
? A product delivered to the door may have considerably more value for some
consumers than one that is bought at the store = Online grocery shopping.
? Time-sensitive shoppers:
? Time-sensitive shoppers may not wish to invest the time and energy required to
track down the best price (complexity of the sites).
? Branding:
? The top Web sites get most of the traffic,
? Consumers show a preference for brand when using shopping agents even if that
brand does not offer the lowest price,
? The best-branded Web sites spend millions of dollars to attract customers:
Amazon spends 24% of revenues on promotion, but it can charge 7-12% more
than bargain online retailers.
Is The Net an Inefficient Market?
? Differentiation:
? Strong branding = perceived/real product differentiation +
different pricing strategy.
? Switching costs:
? Customers face switching costs when they choose a different
online retailer.
? Some customers are not willing to incur those costs and stick
with a familiar online retailer.
? Why? The customer loses access to a familiar interface.
? In the B2B market: it is more effective to build relationships
with a limited number of suppliers rather than offer all items
out for bid.
Is The Net an Inefficient Market?
? Second-generation shopping agents:
? Guide the consumer through the process of quantifying
benefits + evaluating the value equation.
? For benefits ranked high, customers may be willing to pay
more.
? BizRate allows consumers to evaluate merchants based on
ratings compiled from previous customers.
? Is the Internet an efficient market? Not yet, BUT it has all the
features to move toward efficiency in the future.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Pricing Strategies
? Price setting is full of contradictions:
? Short term: If the price is too low profits will suffer/ if it is too high sales decline.
? In the long run: an initial low price that builds market share can create economies of scale to
lower costs + increase profits.
? Information technology has complicated pricing:
? Sellers can easily change prices according to each buyer?s previous behavior.
? BUT it is a steep learning curve.
? Pricing objectives produce very different results = a low price will build market share at the
expense of maximizing profit.
? Buyer value perceptions vary between rational and emotional, and not everyone reacts the
same way.
? Firms using multichannel delivery systems must consider the varying costs of each channel
and buyers? differing value perceptions about purchasing on the Internet versus the brick and
mortar store.
? Pricing is a tricky business, guided by data, experience, and experimentation.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Fixed Pricing
Fixed pricing (also called menu pricing):
Sellers set the price and buyers take it or leave it = same price for everyone.
This is the model most brick-and-mortar retailers use.
Two common fixed pricing strategies used online:
1.Price leadership:
A price leader = lowest-priced product entry + set the pace for
other retailers.
To implement this strategy, costs must be minimum.
Largest producer = price leader because of economies of scale.
The second-lowest-priced item also gain sales, especially if it
offers advantages over the price leader.
Fixed Pricing
? Two common fixed pricing strategies used online:
2. Promotional pricing:
? Used to encourage a first purchase, encourage repeat business, and
close a sale.
? Carry an expiration date to create a sense of urgency.
? Promotional pricing on the Internet can be highly targeted through e-
mail messages and research shows high customer satisfaction with
Internet purchases.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Dynamic Pricing
? The strategy of offering different prices to different customers.
?To optimize inventory management,
?To segment customers by product use or other variables.
?Airlines have long used dynamic pricing software to price air travel.
? With the right technology, segments as small as one can be targeted with
different prices
?Prices can be changed daily or even hourly,
?Depending on changes in demand, supply, competition, costs, or other factors.
Dynamic Pricing
Dynamic pricing can be initiated by the seller or the buyer.
? 2 types of dynamic pricing:

1. Segmented pricing = the company sells a good/service at two or
more prices, based on segment differentiation rather than cost
alone. Segmented pricing is usually set by the seller.
2. Negotiation = the company negotiates prices with individual
customers. Segmented pricing involves a one-time price = may be
different for different customers + may change many times before
buyers and sellers agree. Negotiation is more often initiated by the
buyer.
Network Solutions Practices Segmented Pricing for Services
Source: www.networksolutions.com Reprinted with express permission.
Copyright ? 2000 Network Solutions, Inc. All rights reserved.
Segmented Pricing
? Uses the Internet properties for mass customization, automatically devising pricing
based on order size and timing, demand and supply levels, and other preset decision
factors.
? The firm uses decision rules to set pricing levels for segments of customers according to
customer behavior.
? Is easier online at the individual level because sophisticated software permits firms to
set rules and make price changes.
? Using cookie files, online sellers recognize individuals and experiment with offers and
prices to motivate transactions: Presents customized recommendations to each
customer.
?Online firms can build loyalty programs, like frequent flyer programs, to offer special prices
to individuals who return and purchase often.
Segmented Pricing
? Effective when the market is segmentable,
?The different prices reflect real differences in each segment's perceptions of the
product's value + show different degrees of demand.
? Appropriate when the costs of segmentation + segmented pricing do not
exceed the extra revenue obtained from the price difference.
? The firm?s segmented pricing must meet legal and regulatory guidelines.
? The firm must take care not to upset customers who learn they are getting
different prices than their neighbors.
?E-marketers employing segmentation must use customer accepted reasons =
discounts to new/loyal customers.
Geographic Segment Pricing
? A company sets different prices when selling a product in different geographic areas.
?Seller knows where the user resides because server logs register the user?s IP address + the
top level domain name typically indicates country of residence.
? Geographic pricing can help a company better relate its pricing to country-by-country
or regional factors = competitive pressure, local costs, economic conditions, legal or
regulatory guidelines, and distribution opportunities.
? The manufacturer faces price escalation and must price to reflect the higher costs of
transportation, tariffs, and importer margins, among other costs involved in selling in
different locations.
? Given the Internet?s worldwide reach, marketers also may display a special Web page
to those coming in from markets it does not serve = This helps to build goodwill for the
firm?s brand.
Value Segment Pricing
? The seller recognizes that not all customers provide equal value to the firm.
? Pareto Principle states that 80% of a firm?s business usually comes from the top 20% of
customers.
? A+ customers:
? A small group that contribute disproportionately to the firm?s revenues and profits.
? The most loyal customers who may become brand advocates to their friends and
acquaintances = The frequent flyers.
? They are also brand-loyal frequent customers who provide significant value to the
seller.
?When A+ or A customers appear at the Web site, they will be recognized and
receive special attention.
?They may not be price sensitive = they perceive that the brand/firm offers greater
benefits + has earned their loyalty.
Value Segment Pricing
? B customers are price sensitive + use the product category more than do C
customers.
? C customers: large group + may be price shoppers or infrequent users of the
product category, not accounting for much of the seller?s revenue.
? The seller?s goal is to keep A customers brand loyal and to move all groups up
to a higher level of value.
?Pricing strategies can help.
?Giving high-value customers the first shot at discounts will reinforce their loyalty.
? B and C customers: might enjoy e-mail blasts with fixed prices so they can be
informed of the firm?s price +The seller can use this technique to build a
database for moving customers up in value.
Customer Value Segments From Low (C) to High (A+)
Source: Adapted from (Pitt et al. 2001)
Negotiated Pricing
? Through negotiation the price is set more than once in a back and forth
discussion.
? Haggling over price is common in many countries; but U.S. consumers have
shied away from such bargaining.
? The spectacular growth of online auctions is changing this.
? Many consumers enjoy the sport and community of an auction while others
are just looking for a good deal.
? Auctions in the B2B market are a very effective way to unload surplus
inventory at a price set by the market.
Overview
The Internet Changes Pricing Strategies
Buyer and Seller Perspectives
Buyer View
Seller View
Pricing Strategies
Fixed Pricing
Dynamic Pricing
Bartering
Bartering
? Goods or services are exchanged for other products rather than
cash.
? Users may enjoy tax benefits, but otherwise this is not a
particularly profitable pricing strategy.
? Consumers exchanging/auctioning used items online can hurt
sales of new products.
Review Questions
1. How does fixed pricing differ from dynamic pricing?
2. What is price transparency and why is it an important concept for e-
marketers to understand?
3. List the main factors that put downward pressure on prices in the Internet
channel.
4. List the main factors that put upward pressure on prices in the Internet
channel.
5. From the buyer?s perspective, how does the Internet affect costs?
6. What is an efficient market? What makes the Internet an efficient market
and what indicates that it is not an efficient market?
7. How do e-marketers use geographic, value segment, and negotiated
pricing online?
Discussion Questions
1. Near perfect access to pricing information is a problem that airlines have faced for
years. How have airlines responded to this problem? Should Internet businesses
adopt similar strategies?
2. Which of the online cost-saving factors do you think has the greatest effect on
price? Why?
3. Which pricing strategy would you use to introduce a new product for wireless Web
access? Why?
4. Internet technology allows a company to price the same product differently for
different customers. What do you think would be the advantages and
disadvantages of Amazon offering the same book at one price to a professor and at
a different price to a student?
5. As a buyer, how do you think price transparency affects your ability to develop an
appropriate bidding strategy for new products auctioned by companies through
eBay?
6. As a seller, how do you think price transparency affects your ability to obtain as
high a price as possible for used products you auction through eBay?
Distribution
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Overview
? Distribution determines how the customer receives a product or service =
determines brand image.
? Marketers set strategies for availability, access, and distribution service.
? Distribution channel = group of interdependent firms that work together to
transfer product and information from the supplier to the consumer +
composed of:
? Producers, manufacturers, or originators of the product or service,
? Intermediaries?the firms that match buyers and sellers and mediate the
transactions among them,
? Consumers, customers, or buyers who consume or use the product or service.
Distribution Channel Overview
? Each channel member performs some of the marketing functions
needed to get the product from the point of origin to the point of
consumption.
? Intermediaries:
? Perform some of these functions more effectively & efficiently than other
channel participants.
? Benefits = mediating transactions between parties, providing cost savings
in the form of lowered search, monetary, transaction, and energy costs.
Distribution Channel Overview
? The structure of the distribution channel make or impede
possible opportunities for marketing on the Internet.
? When a consumer purchases online:
? He must perform the search function himself,
? With an automated transaction, he could save money by
performing some distribution functions himself.
? 4 elements of a company?s channel structure:
1. Types of channel intermediaries.
2. Length of the channel.
3. Functions performed by members of the channel.
4. Physical and informational systems that link the channel members and
provide for coordination and management of their collective effort to
deliver the product or service.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Types of Intermediaries
Channel intermediaries include:
1. Wholesalers: buy products from the manufacturer + resell them to retailers.
2. Retailers (brick-and-mortar & online): buy products from wholesalers + sell them to
consumers.
3. Brokers: facilitate transactions between buyers and sellers without representing
either party = market makers.
4. Agents: represent the buyer/seller + facilitate transactions between buyers and
sellers but do not take title to the goods. Manufacturer?s agents represent the
seller & purchasing agents represent the buyer.
? For digital products (software), the entire distribution channel may be Internet
based = the supplier can delivers it over the Internet to the buyer?s computer.
? Non-digital products (flowers/wine) may be purchased online but must be delivered
via truck. The exact location of that shipment can be tracked using a Web-based
interface.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Length and Functions
? The length = number of intermediaries between supplier and
consumer:
? Direct distribution channel
? No intermediaries,
? The manufacturer deals directly with the consumer,
? Dell Computer sells directly to customers.
? Indirect channel
? Incorporate one or more intermediaries,
? Suppliers, a manufacturer, wholesalers, retailers, end consumers,
? Intermediaries help to perform important functions.
Distribution Channel Length and Functions
? Disintermediation = eliminating traditional intermediaries:
? The Internet was predicted to eliminate intermediaries,
? It can potentially reduce costs,
? Taken to its extreme, disintermediation allows the supplier to transfer
goods and services directly to the consumer in a direct channel.
? Complete disintermediation = the exception because intermediaries can
handle channel functions more efficiently than producers (more
specialized).
Distribution Channel Length and Functions
? Initially, the Internet was thought to eliminated costly
intermediaries.
? This line of reasoning failed to recognize some important facts.
1. The U. S. distribution system is the most efficient in the world.
2. Using intermediaries allows companies to focus on what they do best.
3. Traditional intermediaries have been replaced with Internet equivalents.
Distribution Channel Length and Functions
? Online intermediaries are often more efficient than their brick-and
-mortar counterparts:
? Online storefront:
= no rent, maintenance, and staff for retail space
+ inexpensive warehouse = acceptable storage location for
goods sold online,
? BUT online stores = costs of setting up & maintaining their
sites,
? These charges can be significant, but they do not outweigh the
savings realized by eliminating the physical store.
Distribution Channel Length and Functions
? The Internet has added new intermediaries:

? Yahoo! Broadcast aggregates multimedia content
= Yahoo! and Yahoo! Broadcast
= a record store, audio bookstore, radio broadcaster, and TV broadcaster all
rolled into one.
? Other intermediary = Shopping agents, buyer cooperatives, and
metamediaries.
CNET Shopper Helps Users Find Computer-Related Products
Source: www.shopper.com
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Functions of a Distribution Channel
? Many functions must be performed in moving products from producer to
consumer.
? Internet property:
?market deconstruction (removing distribution channel functions from the
players that normally perform them),
?+ reconstruction (reallocating those functions to other intermediaries in novel
ways).
? Online retailers normally hold inventory and perform the pick, pack, and ship
functions in response to a customer order.
? Alternative scenario, the retailer might outsource the pick, pack, and ship
functions to a logistics provider such as UPS:
? Order forwarded to a UPS warehouse where the product waits in storage.
? UPS picks, packs, and ships the product to the consumer.
Functions of a Distribution Channel
? Distributors perform many value-added functions.
1.Transactional Functions:
? Making contact with buyers and using marketing
communication strategies to make them aware of products.
? Matching product to buyer needs, negotiating price, and
processing transactions.
Functions of a Distribution Channel
1. Contact with Buyers
? Internet = a new channel for making contact with buyers,
= the 4th channel after personal selling, mail, and the
telephone,
= 3rd channel for retailers after brick-and-mortar stores and
catalogs.
? The Internet channel adds value to the contact process:
? Contact can be customized to the buyer?s needs,
? The Internet provides a wide range of referral sources such as search
engines, shopping agents, newsgroups, chat rooms, e-mail, Web pages,
and affiliate programs,
? The Internet is always open for business, 24/7.
Customization = Honda Dealer Locator
Source: www.honda.com
Functions of a Distribution Channel
2. Marketing Communications
? Marketing communication = advertising + other types of
product promotion:
? Function often shared among channel players.
? Most effective when they represent a coordinated effort
among channel players.
? A manufacturer may launch an ad campaign while its retailers
offer coupons.
Functions of a Distribution Channel
The Internet adds value to the marketing communications function in
several ways:
? Functions that previously required manual labor can be automated.
Promotional message are sent to millions of users with a simple ?click?.
?
? Communications can be monitored and altered. DoubleClick ?s clients monitor
click-through rates of their banner ads + make substitutions.
? Software for tracking a user?s behavior can be used to target communications
to individuals. www.engage.com anonymously track user behavior online +
target ads to individual users.
? The Internet enhances promotional coordination among intermediaries. Firms
e-mail ads and other material to each other, and all firms may view current
promotions on a Web site at any time.
Functions of a Distribution Channel
3. Matching Product to Buyer?s Needs
? Shopping agents:
? Given a general description of the buyer?s requirements, they can produce a list of
relevant products.
? Allow consumers to quickly compare prices and features within product categories.
? MySimon (www.mysimon.com), PriceScan (www.pricescan.com)
? Online retailers help consumers match product to needs (www.landrover.com).
? Collaborative filtering agents:
? Can predict consumer preferences based on past purchase behavior.
? Amazon uses a collaborative filtering agent to recommend books and music to
customers.
? Once the system is in place, it can handle millions of users at very little incremental
cost. The effectiveness of the collaborative filtering agent actually increases as
consumers are added to the database.
Land Rover consumers can custom-configure vehicles on-line.
Source: www.landrover.com
Functions of a Distribution Channel
4. Negotiating Price
? Price negotiation involves offers and counteroffers between buyer and seller (in person,
over the phone, or via e-mail).
? Shopping agents negotiate prices downward on behalf of the consumer by listing
companies in order of best price first.
? Bidding = form of dynamic/flexible pricing in which the buyer gives suppliers an equal
opportunity to bid.
? Consumer market auctions held by eBay and Amazon.
? Many businesses currently conduct bidding online:
? General Electric solicit online bids from their suppliers.
? Effect of Online bidding = widening the supplier pool = increasing competition + lowering
prices.
? Many auction houses allow buyers to program an agent to represent them in bidding
against other buyers or their agents.
Functions of a Distribution Channel
5. Process Transactions
? Electronic channels lower the cost to process transactions
dramatically.
? The cost of manually processing an average purchase order at
$79?mainly due to labor costs.
Functions of a Distribution Channel
2. Logistical Functions
? Include:
? Physical distribution activities
= transportation or inventory storage,
? Product aggregation.
? Logistical functions are often outsourced to third-party
logistics specialists.
Functions of a Distribution Channel
1. Physical Distribution
? Most products sold online are still distributed through conventional
channels.
? Yet any content that can be digitized can be transmitted from producer to
consumer over the Internet: Text, graphics, audio, and video content.
? Products currently delivered over the Net include television and radio
programs, magazines, books, newspapers, software, videos, and music.
? Distribution costs are significantly lower online.
? The alternative, physical distribution of digital product, is expensive:
? Embedding the content in a medium such as newsprint, a CD, etc.
? Packaging and shipping.
CNET Download.com Carries Thousands of Software Titles
Source: download.com.com
Functions of a Distribution Channel
2. Aggregating Product
? Suppliers operate more efficiently when they produce a high volume of a
narrow range of products.
? Consumers prefer to purchase small quantities of a wide range of products.
? Channel intermediaries perform the essential function of aggregating
product from multiple suppliers so that the consumer can have more
choices in one location.
? Online category killers (www.cdnow.com) =offers thousands of compact
disks from multiple suppliers.
? The Internet can bring together products from multiple manufacturers and
organizing the display on the user?s computer.
? Shopping agents: the unit of aggregation is the product page at the online
store.

Functions of a Distribution Channel
Third-Party Logistics?Outsourced Logistics
? A major logistics problem in the B2B market is reconciling the conflicting
goals of timely delivery and minimal inventory.
? Solution: to place inventory with a third-party logistics provider such as
UPS or FedEx.
? Third parties can also:
? Manage the company?s supply chain,
? Provide value-added services such as product configuration and subassembly,
? Handle the order processes, replenish stock when needed,
? Assign tracking numbers so customers can find their orders.
Functions of a Distribution Channel
? Product returns (reverse logistics) = an other major logistics problem:
? Can run as high as 15%,
? Customers complain about the difficulty and expense of returns.
? Some Web sites offer to pay return shipping.
? But the customer still has to weigh the package, pay shipping fees up front.
? U.S. Postal Service (USPS) program to ease the return process:
? Merchants install software to authorize customers to download and print
postage-paid return labels.
? The customer boxes the item, slaps on the label, and leaves it by the door for
the letter carrier.
? Customers can weigh their packages and download postage onto a laser-
printed label using a service from eStamps, even if a Web site does not
participate in the USPS program.
Functions of a Distribution Channel
The Last Mile Problem
? Problem for online retailers/logistics managers: added expense of delivering small
quantities to individual homes and businesses.
?Less expensive to send cases of product to wholesalers and retailers + let them break
the quantities into smaller units for sale.
? Other problems: 25% of deliveries require multiple delivery attempts (increase costs) +
30% of packages are left on doorsteps when no one is home (theft issue).
? 3 solutions:
? Smart box: 2.5 foot tall steel box with a numeric keypad connected to the Internet. Delivery
people receive a special code for each delivery and use it to open the box and leave the
shipment = efficient and secure solution if consumers are willing to pay the hefty box fee.
? Retail aggregator model: Packages are shipped to participating retailers (local convenience
stores/service stations), then consumers pick up the package.
? Special e-stops = store fronts that exist solely for customer drive though and package pick up.
Functions of a Distribution Channel
3. Facilitating Functions (performed by channel members)
1. Market Research
? A major function of the distribution channel.
? Benefits = an accurate assessment of the size + characteristics of the target
audience.
? The Internet affects the value of market research in five ways:
1. Information available for free.
2. Research conducted from the office ( limits trips expenses).
3. Information = timelier.
4. Information in digital form = e-marketers can easily load it into a spreadsheet or
other software.
5. Because so much consumer behavior data can be captured online, e-marketers can
receive detailed reports.
? Research requires investment in human resources to distill the material + firms need access
to costly commercial information (comScore Media Metrix?s reports, $50,000 each).
Functions of a Distribution Channel
2. Financing
? Financing purchases is an important facilitating function in
consumer/business markets.
? Intermediaries want to make it easy for customers to pay in
order to close the sale.
? Online consumer purchases are financed through credit cards
or special financing plans.
? Consumers are concerned about divulging credit card
information online.
How do Online merchants know they are dealing with a valid
consumer using a legitimate credit card?
? Secure Electronic Transactions (SET)
Functions of a Distribution Channel
SET:
? Legitimizes merchant & consumer + protects the consumer?s credit card #.
? Card number goes to a third party with whom the merchant and consumer validate
one another + the transaction.
? BUT it is so technical that most consumers do not appreciate its subtleties.
? BUT, most merchants do not want to pay for costly SET upgrades.
? Successful outside the United States because of legislative protections:
? Consumers have a max $50 liability for purchases made with stolen card.
? Card issuer usually waives the $50 in order to retain customers.
? That legal protection does not exist in some countries and consumers may be liable
for all charges on their card up to the time they report it stolen.
? Brokers and agents often extend lines of credit to buyers to facilitate purchases +
speed the buying process and make the online channel more attractive.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution System
? The distribution channel = a system of interdependent
organizations working together to build value as products
proceed through the channel .
? 3 ways to define the scope of the channel as a systems:
1. Consider distribution functions that are downstream from the manufacturer
to the consumer = definition of distribution channel,
2. Consider the supply chain upstream from the manufacturer working backward
to the raw materials = definition of the supply chain
3. Consider the supply chain, the manufacturer, and the distribution channel as an
integrated system = the value chain = integrated logistics.
? The supply chain includes upstream and downstream activities as well as
processes internal to the firm.
Wholesaler
Wholesaler

Agent
Retailer 1
Retailer 2
Retailer 3
Farmer 1
Steel
supplier
Fabric
supplier
Food
supplier
Parts
supplier
Parts
supplier
Farmer 2
Manufacturer or
Service provider
Supply Chain
Manufacturer or
Service provider
Distribution
Channel
Supply Chain + Distribution Channel = New Definition of Supply Chain
The circles represent firms in a network of suppliers, manufacturers, and intermediaries.
Distribution System
? Value chain = Integrated logistics = Supply chain.
? Supply chain management (SCM): coordination of flows in three categories:
material (e.g., physical product), information (e.g., demand forecast), and
financial (e.g., credit terms).
? Flow = continuous stream of products, information, finances flowing among
the channel members.
?Most important flow = information (creation of physical product & financing
depend on information.
? Continuous replenishment = ?scan one, make one?and deliver it fast.?
? Build to order: for complex products (computers) = build to order and deliver
quickly.
Distribution System
? Continuous replenishment + build to order help to eliminate inventory:
? Reduces costs because inventory is expensive to finance,
? Increases profits by avoiding unsold inventory going stale and being sold at
a discount.
? Cost savings can result in lower prices = improves the value proposition for the
customer.
? Creating product in response to demand results in delay in delivery.
?The customer?s value is only increased if the delays are acceptable.
? Today?s customer wants it all =lower prices +quick delivery + custom
configuration.
?Solution = tightly coordinate the activities of upstream suppliers + the inner
workings of the firm + the downstream distribution channel.
Distribution System
? Problem in SCM = decide which participant should manage a
channel composed of many firms:
?Sun Microsystems: designs computers but doesn?t build any of them
?Sun manages entire supply chain + suppliers of its contract manufacturers.
?Supply chain management software allows for cooperative coordination.
?Customer demand information is visible to the suppliers who then indicate
what portion of the demand they can handle.
? Interoperability = important in SCM:
?Participants have enterprise resource planning (ERP) systems to manage their
in-house inventory and processes.
?When individual ERP systems share information with the SCM system,
coordination is facilitated in real time.
SCM System Interfaces with Multiple ERP Systems
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Channel Management and Power
? A channel structure requires coordination, communication, and control to
avoid conflict among its members:
? A leader (powerful channel member) institute required measures,
? Market competition between entire supply chains increases.
? Introduction of new information technology can alter the power relationships
among existing channel players:
? In many cases the power of the buyer has been significantly increased at the
expense of the supplier.
? In other cases the power of the supplier has come out on top.
? A classic source of power = geographic location, BUT the Web neutralizes the
importance of location and offers new sources of supply for purchasing.
? The supplier that takes the early lead online will receive business from
consumers and firms eager to shop in this channel.
? When multiple firms are online, suppliers can gain power by establishing structural
relationships with buyers.
Channel Management and Power
? Electronic data interchange (EDI) :
? Is the computerized exchange of information between organizations
(eliminates paperwork).
?Buyer logs onto the supplier?s computer system and types in an order. The
order is electronically conveyed to the supplier and the buyer receives an
electronic bill.
? Is effective for establishing structural relationships between businesses.
? The Internet has put a new face on EDI with the open standards +
interoperable systems:
? The Internet replaced expensive proprietary networks = cost savings,
? Business can use the same computer to interface with multiple suppliers,
? Networks of suppliers and buyers can more easily exchange data using a Web-
based interface.
Channel Management and Power
? EDI is based on 3 key variables:
? The openness of the system,
? The transport method,
? The type of technology used for implementation.
? The goal is to create a standards-based open system that runs
over the Internet so all suppliers and buyers can seamlessly
integrate their systems.
? The technology with the greatest promise to meet this goal is
Extensible Markup Language (XML).
Openness Transport Technology
Proprietary Non-Internet Traditional EDI
Open system Non-Internet Standards-based EDI
(X.12)
Proprietary Internet Application Program
Interface (API)
Open system Internet Open Buying on the
Internet (OBI)
Open system Internet Extensible Markup
Language (XML)
Flavors of EDI
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Classifying Online Channel Members
? Online intermediaries are classified according to their business model.
? Many e-business models have new names, but how many of them are really
new?
?Most e-business models turn out to be variations on existing marketing
concepts.
? The first two models: content sponsorship and direct selling =
producers sell directly to customers using e-marketing.
? The third model, infomediary = a combination of content sponsorship + direct
selling.
? The fourth model involves intermediaries in the distribution channel =
include brokers and agents, online retailers who sell to consumers.
1. Content sponsorship
2. Direct selling
3. Infomediary
4. Intermediaries
Broker: Online exchange
Online auction
Agent: Agent models representing seller
Selling agent (affiliate program)
Manufacturer?s agent (catalog aggregator)
Metamediary
Virtual mall
Agent models representing buyer (purchasing agent)
Shopping agent
Reverse auction
Buyer cooperative
E-Tailer: Digital products
Tangible products
E-Business Models
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Content Sponsorship
Content sponsorship:
? Firms create Web sites, attract a lot of traffic, and sell advertising.
? Can use a niche strategy to draw a special interest audience (iVillage.com).
? Generates revenues for firms selling advertising to other firms.
? The product = ad space on a Web site.
? This model is used by the major portals (AOL, Yahoo!, MSN), and online
magazines/newspapers,
? Much content on the Net is ad supported.
? Used in combination with other models to generate multiple revenue streams
= Buy.com (online retailer) sells ads on its site to generate additional revenue,
allowing it to lower prices.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Direct Selling
Direct selling:
? The manufacturer sells directly to the consumer or business customer = Dell,
? It creates disintermediation = no longer need of wholesalers/retailers,
? Common practice in offline selling + the Internet made it easier for producers to
bypass intermediaries & go directly to consumers.
?Successful in saving millions of dollars in sales-related expenses for personnel,
product configuration, and order processing,
?Successful in the B2C market with sales of digital products (software/music) that
require no inventory and no pick, pack, and ship logistics.
Direct Selling
Direct selling:
? Subscription services = a form of direct selling.
?The subscription model has not been very successful for content providers,
?BUT the Wall Street Journal Online and Classmates.com, are able to sell
content in this manner.
? Benefits of disintermediation:
? Saves customers money by avoiding the middleman,
? Leads to more rapid delivery of the product,
? Ability to claim a piece of the middleman?s margin.
? Costs of direct selling = higher search costs to locate individual manufacturers
+ the time costs of transacting with each manufacturer.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Infomediary
Infomediary:
? Online organization that aggregates and distributes information.
1. A market research firm:
?Compensates (comScore Media Metrix) or not (DoubleClick) the consumer for sharing
information.
2. A variation on the content sponsorship model:
?The firm pays the customer to buy space on computer screen.
?Payment = money, points toward shopping, free Internet service.
?The consumer is really selling space on screen+ attention= the scarcest commodity in
cyberspace.
?Infomediary generates revenue by reselling the screen space to advertisers.
?To receive payment, the consumer must share demographic and/or psychographic
information.
?Consumer installs software that gives a permanent window in which to run ads.
?The consumer benefits by receiving ads targeted to her specific interests.
Infomediary
Infomediary:
? Original idea = give consumers more control over how they receive
marketing messages.
? Benefit: the consumer information increases the value of its ad
inventory.
? Benefit to advertisers: they can market to very highly targeted
audience which has expressly opted-in to the system.
? Permission marketing allows advertisers to do something never
before possible?advertise while the consumer is on a
competitor?s site!
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Intermediary Models
1. Brokerage Models
? The brokers:
? Create a market in which buyers and sellers negotiate and complete transactions.
? Charge the seller and/or buyer a transaction fee,
? Don?t represent either party for providing exchange / negotiation services.
? Provide many value-added services to help attract customers and facilitate
transactions.
? Brokerage models operate Web site exchanges in B2B, B2C, C2C markets:
? The most popular online brokerage models =exchanges & auctions.
? Benefits to the buyer: convenience, speed of order execution, and transaction
processing + cost savings (lower prices, decreased search time, savings of energy
and frustration in locating the appropriate seller).
? Benefit to the seller: creation of a pool of interested buyers + cost savings to the
seller (lowered customer acquisition and transaction costs).
Intermediary Models
Online Exchange:
? E*Trade, Ameritrade, and a host of other online brokerages allow customers to
place trades from their computers without phoning or visiting a broker.
? Benefits:
? Pass along cost savings to the buyer = lower transaction fees,
? Execute trades very quickly, provide reference resources, and allow for
program trading.
? Newer services bypass the Web & connect traders straight to the market
? Carpoint.msn.com, AutoByTel, and other online brokers:
? Allow customers to receive bids from dealers on vehicles available in their
area without first phoning or visiting the dealer.
? The dealers offer a no-hassle price quote through the service = the
customer avoids negotiating price with dealer.
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Aggregates supply & demand from thousands of component,
original equipment, contract manufacturers, distributors, and
resellers,
? Similar model to stock exchange:
? Customers contact a trader on the floor of the exchange with their
request,
? The trader locates a supplier, completes the purchase, and pockets the
spread between the buy and sell price,
? Additional revenue = Other fixed fees,
Intermediary Models
Online Exchange: Converge, leading anonymous exchange for
the global electronics market:
? Anonymous exchange = Suppliers ship to a quality control
warehouse (goods are inspected / forwarded to the buyer).
? Quality of the products guarantees + no-questions-asked return
policy.
? Online services:
? Personal buy & sell portfolios,
? Chatlike communication with traders,
? Multiple methods for issuing requests.
Intermediary Models
Online Auction
? Are challenging the fixed price model = norm for the last 100 years.
? Are available in the B2B, B2C, and C2C markets.
? Broker intermediaries (uBid) = Most merchants auction their surplus through
third party auctioneers.
? Direct sellers using dynamic pricing = When merchants auction items on their
own Web sites.
? Sellers benefit: Obtain market price for goods and unloading surplus inventory.
? Buyers benefit: Obtain a good deal & enjoying the sport of the auction.
Intermediary Models
Online Auction
? The downside: Buyer can waste a lot of time monitoring the auction.
? Some auction houses offer a broad range of products:
? B2C auction from computers to travel (Ubid).
? Niche markets specialist.
? C2C auctions in thousands of product categories (eBay).
?EBay innovative services include escrow, electronic payment, and
appraisal services.
Intermediary Models
2. Agent Models
? DO represent either the buyer or the seller depending on who
pays their fee.
? In some cases they are legally obligated to represent the
interests of the party that hires them.
Agent Models Representing Sellers
? All agents that represent the seller
= Selling agents, manufacturer?s agents, metamediaries, and
virtual malls.
Intermediary Models
Selling Agent
? Represent a single firm = help sell its products,
? Work for a commission.
Affiliate programs:
? Pay commissions to Web site owners for customer referrals
resulting in a sale.
? Some affiliates demand a share of the lifetime value of the
customer as opposed to just a piece of the first sale.
? Amazon.com pioneered one of the first affiliate programs.
Intermediary Models
Manufacturer?s Agent
? Aggregators = represent many sellers on one Web site.
? Offline = represent firms selling complementary products to avoid conflicts of interest,
? Online = create Web sites to help an entire industry sell its products,
?Travel reservations Web sites = commissions are paid by the airlines & hotels they
represent = Expedia, Travelocity, Orbitz,
?Benefits: better deals & convenience.
? Catalog aggregators = In the B2B market:
? Each of the sellers has a broad catalog of product offerings.
? Challenge = gather the information from all of these catalogs into a database for
presentation on the Web site.
? Tools = catalog aggregator offers software that interfaces with the suppliers?
internal database systems.
?Task is easier when the suppliers use industry standard software to manage their
catalogs + catalogs must be updated (product availability & prices change).
Intermediary Models
? Buyer?s enterprise resource planning (ERP) systems are used to support
catalog customization and integration by more advanced manufacturer?s
agents.
? Customized catalogs features:
? Prenegotiated product offerings & prices,
? Spending limits for particular employees & automatically forward big-ticket orders
to the appropriate officer for approval,
? Recommending substitutions, notifying buyers of production lead times,
processing orders, and tracking orders.
? Buyer benefits:
? Shorter order cycles, reduced inventories, & increased control.
? Lower order processing costs = paperless transactions, automated request for
proposal (RFP) and request for quote (RFQ), and integration with ERP systems.
Intermediary Models
Metamediary
? An agent that represents a cluster of manufacturers, e-tailers, and content providers
organized around a life event or major asset purchase.
? Solves 4 major consumer problems:
? Reducing search times,
? Providing quality assurance about vendors,
? Facilitating transactions for a group of related purchases,
? Providing relevant and unbiased content information about the purchase.
? Benefit for metamediary business partners = having traffic directed to their sites +
cobranding with the metamediary.
? Receives commissions for referrals (completed transaction).
?The key to success is consumer trust = careful selection of the sellers they l represent.
Intermediary Models
Virtual Mall
? Host multiple online merchants in a model very similar to a
shopping mall.
? Hosted merchants gain exposure from traffic coming to the mall.
? The mall gains through a variety of fees: listing fees, transaction
fees, and setup fees.
? Brick-and-mortar malls benefits:
? A desirable collection of stores in one location,
? Easy accessible from major highways,
? Ample free parking,
= none of these benefits apply online.
Intermediary Models
Virtual Mall
? 6 customer benefits:
1. Branding?consumers may be more comfortable buying from a store
listed on Yahoo! Store,
2. Availability of digital wallets: customers register their shipping & billing
information only once, Availability of frequent shopper programs that
reward consumers for shopping within the mall,
3. A gift registry that operates across multiple stores,
4. A search facility to locate products in mall stores,
5. A recommendation service such as suggestions for Mother?s Day gifts.
Intermediary Models
Agent Models Representing Buyers
? Represent buyers.
? In traditional marketing: they often forge long- term relationships with one or
more firms,
? On the Internet: they represent any number of buyers, anonymously in many
cases:
? Shopping agents and reverse auctions help individual buyers obtain the
prices they want,
? Buyer cooperatives pool buyers for larger volume buys & lower prices.
Intermediary Models
Shopping Agent
? Many feared that they would drive prices on the Internet down to impossible
margins.
? It did not happened because price is not the only factor consumers consider
when making a purchase.
? Second-generation shopping agents = newer shopping agents can now
measure value and not just price (PriceScan and DealTime).
? BizRate.com:
? Quantitative performance evaluation of a merchant,
? Rates online merchants based on customer feedback,
? Posts a report card of past consumer experiences with the merchant,
? Shows the merchant?s stated business policies,
? Offers a rebate program for customers who buy from participating merchants.
Intermediary Models
Reverse Auction
? Occurs at a Web site serving as purchasing agent for individual buyers.
? Reverse auction:
? Buyer specifies a price and sellers bid for the buyer?s business.
? Buyer commits to buying at a specified price and the seller either meets the price
or tries to get close enough to make the sale.
? Priceline.
? Benefit to the seller = unloading excess inventory without unduly upsetting
existing channels (airline seats/hotel rooms).
? Benefit for the buyer = lower prices & satisfaction of being able to name one?s
price.
? BUT:
? Fewer choices of brand, suppliers, and product features.
? The reduced choice feature differentiates the product to avoid conflict with the
supplier?s existing channel partners.
Intermediary Models
Buyer Cooperative = buyer aggregator:
? Pools many buyers together to drive down the price on selected items.
? Benefit for individual buyer: price of volume buying.
?The more buyers, the lower the price in a step function.
? Mercata, MobShop, and other cooperatives were not able to build profitable
business models online and closed.
?The remaining online coops represent more traditional brick-and-mortar coops
= the Solar and Renewable Energy Cooperative .
?The Internet is capable of supporting this model.
Intermediary Models
3. Online Retailing
? The most visible e-business models:
? Merchants set up online storefronts and sell to businesses and/or consumers.
? Delivery over the Internet for digital goods / shipping for physical goods.
? Any level of commitment from pure play to barely dabbling.
? CDNOW.
? Pre-Internet presence carries brand equity, BUT it does not guarantee
online success:
? Pure plays are free from the cultural constraints of established businesses = can
innovate quicker in response to customer needs.
? Some Internet pure plays are establishing brick-and-mortar operations to
enhance branding through additional exposure and an additional channel for
customers to experience their products.
? E*Trade and Gateway Computer = both extended their brick-and-mortar
presence in recent years.
Intermediary Models
Digital Products
? One great hope for the Internet is to serve as a medium for the physical
distribution of goods and services.
? BUT there is still a way to go.
? Content that can be digitized can be transmitted over the Internet:
? The New York Times digitally distributes an online version of its
newspaper,
? Thousands of radio stations broadcast live programming, Software has
a long history of online distribution.
? Distribution costs are significantly lower for digital products, compared
with physical distribution.
Intermediary Models
Tangible Products
? Many products sold online are still distributed through conventional channels.
? Major record labels will not allow their music to be distributed online.
? The Internet consumer may make the purchase online but the CD will arrive via
some carrier = distribution relatively inefficient,
? Consumers pay a premium for this service, which may outweigh the cost savings of
purchasing online.
? Local regulations sometimes impede the direct distribution of product.
Wine.com, a wine distributor, has been forced by some state regulations to
operate through local intermediaries = lengthens its distribution channel.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
Distribution Channel Metrics
? Does online commerce work?
? To answer this question:
?Firms must consider its effectiveness in terms of
reaching target market segments effectively and
efficiently.
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2C Market
? Online retailing is only a tiny fraction of all retail sales:
? In 2001, U.S. consumers spent $32.6 billion online, $72 billion for catalog
sales.
? In 2001, 15% of Internet users purchased online + 15% purchased offline
based on information they got on the Web.
? Online sales are unlikely to ever reach more than 10% of all retail
sales.
?Because consumers are satisfied with brick-and-mortar shopping; until
they become dissatisfied, they will not switch to the Internet.
?Firms should analyze which customers prefer which sales channels for
specific products.
B2C Market
? What are U.S. consumers buying online?
? Computer hardware, toys, apparel, and travel (air tickets, hotels, car).
? Apparel and toy purchases have gained in sales over the past two years.
? 2 strategies are particularly effective online:
? A high reach strategy of accumulating large numbers of customers with cost-
effective conversion rates (visit the site and buy) for high frequency purchases
of low margin products and services (CDs/books) = Amazon.com.
? A niche strategy with narrow focus on a particular product or service category
such as luxury items or apparel = Dell.com.
B2C Market
? The best use of online retailing = a complement to offline
channels = the customers choose between bricks and mortar, the
Internet, or traditional catalogs.
? Additional measures:
? Which affiliations deliver the most users? This is a measure of affiliate
program effectiveness.
? What is happening to users referred from an affiliate site?
? When and how do customers arrive at a Web site?
? How long do users stay at a Web site?
? How is buyer behavior different from other users who do not buy?
? How frequently are visitors converted to customers?
? Which channel partners deliver the most profitable customers? The most
loyal ones?
Overview
Distribution Channel Overview
Types of Intermediaries
Distribution Channel Length and Functions
Functions of a Distribution Channel
Distribution System
Channel Management and Power
Classifying Online Channel Members
Content Sponsorship
Direct Selling
Infomediary
Intermediary Models
Distribution Channel Metrics
B2C Market
B2B Market
B2B Market
? The B2B market is big business:
?The Internet is a more efficient way for firms to order from each other,
?They use the Web to search for suppliers,
?They simply facilitate current relationships throughout online ordering,
shipment tracking, and more.
? Metrics in the B2B + in B2C markets:
?They relate to the e-marketing goals.
?Critical to understand how e-commerce fits into the overall marketing
strategy, what the firm expects to accomplish through it, and whether or
not it is working.
?For B2B, metrics may look at time from order to delivery, order fill levels,
and other activities that reflect functions performed by channel
participants.
SALES PROMOTIONS
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the movement of products from
producer to end user.
? Include coupons, rebates, product sampling, contests, sweepstakes, and premiums (free
or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion dollar promotional
market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than with direct mail.
?Online tactics are directed primarily to consumers / most offline sales promotion tactics
are directed to businesses in the distribution channel.
? Consumer sales promotions are used in combination with advertising.
? Uses: banner ad + good for drawing users to a Web site, enticing them to stay, and
compelling them to return.
? Results: build brands, build databases, and support increased online or offline sales.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available
on the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers
and 18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or
traditional advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip
ticket given away every hour, 24/7, for six weeks.
Freestuff2000.com Consolidates Sales Promotions from Many Web Sites
Source: www.freestuff2000.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Direct Marketing
? Direct marketing is ?any direct communication to a consumer or business
recipient that is designed to generate a response in the form of an order (direct
order), a request for further information (lead generation), and/or a visit to a
store or other place of business for purchase of specific a product(s) or
service(s) (traffic generation).?
? It includes:
? Telemarketing, outgoing e-mail, and postal mail (& catalog marketing),
? Targeted banner ads, other forms of advertising and sales promotions that solicit a
direct response,
? E-mail and its wireless offspring, short message services (SMS).
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
E-Mail
? 8 billion e-mails a year flying over the Internet worldwide:
? User spends >1/3 of all time online managing e-mail.
? Marketing related e-mail = 22% of a typical Internet user?s in-box + half of it =
unwanted spam.
? Advantages of E-mail over postal direct mail:
? No postage or printing charges: average cost e-mail message < $0.01, direct mail
$.50 to $2.00.
? Offers an immediate and convenient avenue for direct response (hyperlinks to Web
sites using).
? Can be automatically individualized to meet the needs of specific users.
? E-mail Postal Mail
Delivery?cost?per?thousand $30 $500
Creative?costs?to?develop $1,000 $17,000
Click?through?rate 10% N/A
Customer?conversion?rate 5% 3%
Execution?time 3?weeks 3?months
Response?time 48?hours 3?weeks
Metrics for Electronic and Postal Mail
Source: Jupiter Communications as cited in ?E-mail and the different...?
Date:?Mon,?14?Feb?2002?09:13:14?-0500?
To:?Judy?Strauss??
From:?MCI?WorldCom??
Subject:?Monthly?Mileage?Statement?
?Dear?Judy?Strauss,
Your?monthly?statement?helps?you?keep?track?of?the?AAdvantage?miles?you're?earning?with?
the?MCI/AAdvantage?program.
NTAGEONTHLY MILEAGE STATEMENT
MCI?WorldCom?Account?Number:?XXX
American?Airlines?Frequent?Flyer?Number:?XXX
MCI AADVANTAGE MILES EARNED
?
ON YOUR LAST BILL:160
PROGRAM TO DATE:44785
?See?your?miles?online?anytime.?Go?to?Online?Account?Manager?at?
www.mci.com/service.
Aadvantage?miles?represented?in?this?statement?reflect?your?prior?month's?balance.?These?
AAdvantage?miles?have?been?sent?for?posting?to?your?American?Airlines?AAdvantage?account.?
Please?allow?6-8?weeks?for?AAdvantage?miles?earned?to?appear?on?your?account.?
Individualized?E-Mail?to?Account?Holder?
E-Mail
? Disadvantages:
? Spam (unsolicited e-mail),
? Difficulty in finding appropriate e-mail lists.
? Consumers are much more upset about spam then they are about unsolicited
postal mail.
? E-mail lists are hard to obtain and maintain. 3 ways to build a list:
1. Generated through Web site registrations, subscription registrations, or
purchase records,
2. Rented from a list broker,
3. Harvested from newsgroup postings or online e-mail directories.
? 50% of the U.S. population has one or more e-mail addresses but it is very
difficult to match them with individual customers and prospects in a firm?s
database.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Opt-In, Opt-Out
? Opt-in e-mail address = users have agreed to receive commercial e-mail about topics of
interest to them.
? Brokers rent lists to charge a fee for each mailing. The cost is:
? $150 CPM (Cost Per Thousand) for B2C market lists,
? 250 CPM for the B2B market / typical B2C postal mail list rental = $20 CPM.
? Web users have lots of opportunity to opt-in to mailing lists at Web sites, often by simply
checking a box and entering an e-mail address.
? Lists with opt-in members get much higher response than do lists without = response
rates of up to 90%.
?Opt-in lists are successful because users receive coupons, cash, or products for
responding.
?Marketers are shifting marketing dollars directly to consumers for rewards in lieu of
purchasing advertising space.
Opt-In, Opt-Out
? Opt-out = users have to uncheck the box on a Web page to prevent being put
on the e-mail list.
? Questionable practice because users do not always read a Web page
thoroughly enough and may be upset at receiving e-mail later.
? Opt-in techniques = part of a traditional marketing strategy called permission
marketing: it is about turning strangers into customers.
? How to do this?
?Ask people what they are interested in, ask permission to send them
information, and then do it in an entertaining, educational, or interesting
manner.
? Opt-in techniques are expected to evolve and grow considerably.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Viral Marketing
? Viral marketing
= When individuals forward e-mail to friends, co-workers, family, and others on
their e-mail lists
= Word of mouse.
? Viral marketing works and it?s free.
? Hotmail started with only a $50,000 promotion budget ($50 -100 million
needed to launch a brand in offline):
? The firm sent e-mail telling folks about its Web-based e-mail service,
? After 6 months = 1 million registered users,
? After 18 months = 12 million subscribers + Microsoft acquired the firm for $400
million in Microsoft stock.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Short Text Messaging (SMS)
? Short text messages = 160 characters of text sent by one user to another over
the Internet (with a cell phone or PDA).
? Instant messaging = short messages sent among users who are online at the
same time.
? SMS:
? Uses a store-and-send technology = holds messages for a few days,
? Is attractive to cell phone users to communicate quickly + inexpensively.
? Are charged cell phone minutes= minimal cost compared to a conversation.
? Is easy = users do not have to open e-mail to send or receive. They simply type the
message on the phone keyboard.
? 200 billion short text messages a month were flying between mobile phones
worldwide by the end of 2002.
Short Text Messaging (SMS)
How can marketers capitalize on SMS use?
? Marketers can build relationships by sending permission-based information to
customers when and where they want to receive it.
? A successful messages = short, personalized, interactive, and relevant =
Notification of an upcoming flight delay, or an overnight shipment.
? Heineken, used an SMS sales promotion to capitalize on the British pub tradition of quiz
nights:
? Point of purchase signs in pubs inviting customers to call a phone number from cell
phones and type in the word ?play? as a text message.
? The customer received a series of 3 multiple choice questions to answer.
? Correctly answering all the questions scored a food or beverage prize (special
verifiable number to the bartender) and 20% of all players won.
? Feedback = a great promotion...consumers found it fun + sellers found it to be a
hook.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Location-Based Marketing
? Location-based marketing = promotional offers that are pushed to mobile
devices and customized based on the user?s physical location.
? The technology:
?A global positioning system (GPS) in a handheld device or automobile,
?User address information stored in a database.
? Lycos spent $1.2 million in 2001 turning some Boston and New York taxicabs
into animated billboards by sending relevant ads based on the cab?s physical
location.
?The GPS device sent physical coordinates to the ad server,
?Financial ads were shown when the cab was in the financial district, and so
forth.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Spam
? Netizens do not like unsolicited e-mail because it shifts the burden of selectivity
from sender to recipient. Users developed the term spam as a pejorative
reference to this type of e-mail. Marketers must be careful because viral
marketing can work in reverse as well. Recipients of e-mail perceived as spam
can vent their opposition to thousands of users in public newsgroup forums,
and to friends on e-mail lists, thereby quickly generating negative publicity for
the organization.
? Spammers routinely harvest e-mail addresses from newsgroup postings and
then spam all the newsgroup members. Spam lists can also be generated from
public directories such as those provided by many universities to look up
student e-mail addresses. Spammers often hide their return e-mail addresses
so that the recipients cannot reply. Other unscrupulous tactics include
spamming through a legitimate organization?s e-mail server so that the
message appears to come from an employee of that organization.
Spam
? Incidentally, spam is a problem in the B2B market as well as the B2C market. Editorial
staff from the media complain about getting spam from public relations personnel at
firms. Some measures have been put in place to limit spam. Many moderated
newsgroups filter spam, and most e-mail programs offer users the option to filter spam
as well. There have also been a number of suits filed by ISPs seeking to recover costs
from spammers for the strain on their systems from the tremendous number of spam
messages. Remember that all unsolicited e-mail is considered spam; still, as with direct
mail, when the e-mail is appropriate and useful to the recipient, it is welcomed,
unsolicited or not.
? It is increasingly common for opt-in lists to remind users that they are not being
spammed. Usually a disclaimer appears right at the beginning of the message, ?You are
receiving this message because you requested to be notified about??. The message also
advises users how they can easily request to be removed from the list. This is important
since many users do not realize that they opted-in?especially if they did so far in the
past or in an unrelated context.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Privacy
? Databases drive e-mail marketing. This requires collecting personal information,
both online and offline, and using it to send commercial e-mail, customized
Web pages, banners ads, and more. Astute marketers have found that
consumers will readily give personal information to firms who use it to provide
value and who do not share it with others unless given permission. For
example, Amazon.com has implicit permission to collect customers? purchase
information in the database and serve it collectively to others looking for book
recommendations. Users don?t mind this because they receive valuable
information and their privacy is guarded on an individual level. Amazon also has
permission to send customers e-mail notification of books that might interest
each individual. When Amazon announced that it would share customer
databases with partners, there was a huge media backlash. This proves, once
again, that firms who desire to build customer relationships must guard the
privacy of customer data.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Internet as a Medium
? How do marketers view the Internet as just one of many media to carry
marketing communication messages?
? All channels of communication = TV, radio, newspapers, magazines, outdoor
(e.g., kiosks, bus cards, and billboards), direct mail, and the Internet.
? Marketers need to understand the major media?s characteristics and Internet?s
media characteristics to make appropriate choices when buying promotional
space.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
The Medium Is Not the Appliance
? Marketers should understand that the medium is not the same as the receiving
appliance. Messages are sent by content sponsors in electronic form via satellite,
telephone wires, or cable, and then received by the audience through appliances (also
called receivers) such as televisions, computers, radios, cell phones, PDAs, and so on.
Bear in mind that the receiving appliance is separate from the media transmission
because this mind-set allows for flexibility. For example, computers can receive digital
radio and television transmissions, and television can receive the Web. Some appliances,
such as radio and FAX machines, have limited receiving capabilities, while others are
more flexible. Today the computer is the only appliance that allows all types of two-way
digital multimedia electronic transmissions. This idea is both mind boggling and exciting
because of the business opportunities. Separating the medium from the appliance opens
the door to new types of receiving appliances that are also ?smart,? allowing for saving,
editing, and sending transmissions. So, next time you think of television programming,
remember that by the year 2008 it will be simply digitized video that can be sent several
ways to a number of receiving devices.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Media Characteristics
? Electronic media include network television, radio, cable television, the Internet, FAX
machine, cellular phone, and pager. We present these media as broadcast, narrowcast,
and pointcast on the basis of their capability to reach mass audiences, smaller
audiences, or even individuals with different messages. Other traditional media
competing for marketing communication dollars include print and direct mail.
Broadcast Media
? Broadcast media (TV and radio) have a number of strengths and weaknesses, as
reflected in Exhibit 13 - 7. TV penetration reaches over 98% of U.S. households, with one
-third owning three or more sets. TV remains the only medium for advertisers wanting
to reach large numbers of consumers at one time, but it is costly ($70,000 to $550,000
for 30 seconds of prime time in the U.S.). Radio?s penetration is also ubiquitous. Almost
every household and car has a radio. Radio advertising time is inexpensive ($20 to $200
for 60 seconds) and has excellent local market coverage.
? Narrowcast Medium
? Cable TV (CATV) is a narrowcast medium. It is called narrowcast because cable channels
contain very focused electronic content appealing to special-interest markets. For
example, cable channels such as CNN or ESPN are networks in that they reach extremely
large audiences worldwide, but they still have very specialized programming. CATV
advertising tends to be less expensive than broadcast advertising, although there are
exceptions.
?
Criterion
?
TV
?
Radio
?
Magazine
?
Newspaper
Direct?
Mail
?
Web
Involvement passive passive active active active Interactive
Media
Richness
multi-
media
audio text and
graphic
text and
graphic
text and
graphic
multi-
media
Geographic
Coverage
global local global local varies Global
CPM low lowest high medium high medium
Reach high medium low medium varies medium
Targeting good good excellent good
excellent
excellent
Track?
effectiveness
fair fair fair fair
excellent
excellent
Message?
flexibility
poor good poor good
excellent
excellent
Strengths and Weaknesses of Major Media
Pointcast Media
? The folks at www.pointcast.com, who brought individualized news service to
every computer desktop, coined the term pointcast. Pointcast media are
electronic media with the capability of transmitting to an audience of just one
person, such as the Internet and the cell phone. Pointcast media can transmit
either personalized or standardized messages in bulk to the entire audience of
those who have the equipment to receive them, and these individuals can
transmit a single message back to the sender using the same equipment.
Receiving devices include pagers, cell phones, PDA?s, computers, TV, FAX
machines, and more. FAX machines are the only pointcast receiving device
where unsolicited marketing communications are illegal. This is due to the cost
of receiving messages.
Media Characteristics
? From a media buyer?s perspective, the strengths of the Internet include: selective targeting with e-mail and
Web content by using databases, ability to track advertising effectiveness, flexibility of message length and
delivery timing, ability to reach global markets with one advertising buy (e.g., the Yahoo! portal), and
interactivity. The Internet is the first electronic medium to allow active, self-paced viewing (similar to print
media), and it is the first and best medium for interactivity. In fact, many say that with the Internet, users
create their own content. The Internet?s weaknesses include the inability to reach mass audiences, slow
video delivery to most due to low broadband penetration, and incomplete audience descriptions. Many of
the weaknesses of the Net are in the process of being remedied. Audience measurement was initially a
weakness, though companies such as Jupiter Media Metrix and Nielsen//NetRatings have made major
improvements in this area.
Media Characteristics
? Print Media
? Print media include newspapers (local and national) and magazines. The Net is often
compared to print media because its content is text and graphic heavy, and because
many traditional print media publishers maintain online versions. Unlike television and
radio, print media allow for active viewing: Readers can stop to look at an ad that
interests them, sometimes spending quite a bit of time reading the details. In general,
magazine advertising space is much more expensive than newspaper space.
? Direct Mail
? Finally, like the Internet, direct mail allows for more selective targeting than any mass
medium, can be personalized, gives good message and timing flexibility, and is excellent
for measuring effectiveness because of response tracking capability. However, direct
mail has a poor image (junk mail) and high costs for production and postage. Conversely,
e-mail has low costs but limited market coverage compared with postal mail. This is
changing as companies build extensive e-mail databases.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Which Media and Vehicles to Buy?
? Marketers spent more of their 2001 media budgets on the Internet than on
radio or outdoor, but much less than on television or newspapers. This
generalization is interesting, but not very useful for media buyers who plan a
combination of media to achieve marketing communication goals for a
particular campaign and brand. Media planners want both effective and
efficient media buys. Effectiveness means reaching and gaining the attention of
the target market, and efficiency means doing so at the lowest cost.
Efficient Internet Buys
? To measure efficiency before buying advertising space, media buyers use a
metric called CPM (cost per thousand). This is calculated by taking the ad?s cost,
dividing it by the audience size, and then multiplying by 1,000 (cost ? audience
x 1,000). Internet audience size is counted using impressions: the number of
times an ad was served to unique site visitors. For example, in June 2002 a full
banner ad at MediaPost.com, an advertising and media Internet portal,
received 2.4 million impressions and cost $168,000 a month for a CPM of $70.
(Incidentally, this firm charges an additional $10 CPM slotting fee for a specific
position.) CPM is used because it allows for efficiency comparisons among
various media and vehicles within the media (e.g., a particular magazine or Web
site). If the audience for certain media vehicles matches the firm?s target
(effective buy), CPM calculations will determine the most efficient buy.
Magazines are usually the most expensive media to reach 1,000 readers; radio
is often the least expensive.
Efficient Internet Buys
? Typical Web CPM prices are $7 to $15 CPM (Hallerman, 2002). MediaPost is higher
because it reaches a select target in the B2B market. According to eMarketer in March
2002, the CPM ranges between $75 and $200 for e-mail ads, and between $20 and $40
for e-mail newsletter sponsorship.
? It is interesting to note that only 50% of Web site advertising is purchased using the CPM
model (PricewaterhouseCoopers 2002). Unlike most traditional media, 13% of online
advertisers pay based on performance, and the remainder use some combination of the
two models. Performance-based payment, often called cost-per-action (CPA), includes
schemes such as payment for each click on the ad, payment for each conversion (sale),
or payment for each sales lead. This type of pricing is beneficial to advertisers, but risky
for Web sites that must depend partially on the power of the client?s ad and product for
revenues.
? CPM, CPA, and other online advertising pricing models are only part of the measurement
picture. As noted later in this chapter, marketers use many other metrics to evaluate the
efficiency of their advertising while it is running.
Effective Internet Buys
? Once a firm decides to buy online advertising (medium), it faces the question of
which vehicle (individual site) to use. As noted earlier, media planners look for
the Web site(s) and e-mail lists with audiences that closely match the brand?s
target markets. Beyond that important principle, marketers use many
innovative technology strategies to reach narrowly targeted markets.
? Advertisers trying to reach the largest number of users will buy space at the
portals such as Yahoo! and AOL. Exhibit 13 - 8 displays the top Web properties
worldwide in January 2002. While this is only a snapshot in time, AOL,
Microsoft (MSN sites including Hotmail), and Yahoo! are consistently in the top
five in most countries. Note that an advertiser buying all three sites worldwide
cannot amass a million sets of eyeballs. This is further evidence that the Web is
not very effective at reaching the masses, but is better at reaching niche
markets.
Effective Internet Buys
? Ad servers track user click-streams via cookies and serve ads based on user
behavior. One such firm, DoubleClick, served 55 billion ads to Web users along
with client Web pages during May 2002. This represents multiple servings of
the same ads, because Nielsen-Netratings reports only about 70,000 unique ads
in April 2002. DoubleClick technology can detect a user at a client site who then
goes to a second client site (click stream), and serve the user an appropriate ad
based on the user?s interests. DoubleClick data from three months in early 2002
revealed that 43.8% of its ads were targeted by key words or key values in this
manner, while 5.5% were served to specific geographic areas and 1.3% by time
of day (?DoubleClick Ad Serving...? 2002). Many Web sites offer specific ad
targeting by day, time, user geography or domain (e.g., .edu, .jp), and so forth.
Effective Internet Buys
? Another targeting approach, keyword advertising, refers to search word buys at search engine
sites. For example, advertisers can buy the word automobile, and when users search using that
word, the advertiser?s banner or message will appear on the resulting page. Usually keyword buys
are more expensive because they deliver a more highly targeted audience. Google.com goes a
step further by ordering the search query return page keyword banners by popularity. Thus, the
most relevant ad tops the list of four or eight on the page. Google charges $8 to $15 CPM for
placement on its key word search (called AdWords). The amount an advertiser can spend at
Google varies widely; depending on the popularity of the key words, an advertiser might pay
$10,000 to $500,000 per month.
Web Property Unique Visitors in millions
? Worldwide U.S.
Microsoft?Corporation 269.8 99.7
Yahoo?Inc. 219.5 92.5
AOL?Time?Warner 169.6 88.0
Terra?Lycos 143.1 51.1
Google?Inc. 93.2 31.1
Amazon.com?Inc. 79.0 37.5
CNET?Networks?Inc. 75.1 28.0
Primedia?Inc. 72.1 31.6
U.S.?Government 56.1 38.6
EBay 55.9 32.9
Top Online Properties by Parent Company for January 2002
Source: Data from www.cyberatlas.internet.com
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
IMC Metrics
? Savvy marketers set specific objectives for their IMC campaigns,
? Then they track progress toward those goals by monitoring appropriate metrics.
IMC Metrics and Industry Averages
Sources:
1
Hallerman (2002);
2
data from www.eMarketer.com;
3
Saunders (2001);
4
Gallogly (2002);
5
?DoubleClick Ad
Serving...? (2002);
6
data from shop.org;
7
data from www.computerworld.com;
8
data from www.nielsen-
netratings.com;
9
PricewaterhouseCoopers, LLP (2002).
Metric
Definition/formula Online Averages
CPM Cost?Per?Thousand?Impressions?
CPM?=?[Total?Cost? ? (Impressions)] ?
1000
$7?to?$15?for?banners
1
?
$75?and?$200?for?e-mail?ads
2
$20?and?$40?for?e-mail?
newsletter
2
Click-through rate
(CTR)
Number?of?clicks?as?percent?of?total?
impressions
CTR?=?Clicks? ? Impressions
0.3%?-?0.8%?for?banners
3,5
2.4%?rich?media?ads
5
3.2%?-?10%?opt-in?e-mail
3,9
Cost Per Click (CPC)

Cost?for?each?visitor?from?ad?click
CPC?=?Total?Ad?Cost? ? Clicks
Varies?widely
Google.com?ranges?from?a?
few?cents?to?a?few?dollars
Conversion Rate Percent?of?people?who?purchased?from?
total?number?of?visitors
Conversion?Rate?=?Orders? ? Visitors
1.8%?for?Web?sites
6
5%?for?e-mail
9
Customer
Acquisition Cost
(CAC)
Total?marketing?costs?to?acquire?a?
customer
?
Varies?by?industry
$82?for?online?retail?pure-
plays;?$31?for?multi-channel?
brick?and?mortar?retailers
7
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Effectiveness Evidence
? Banner ads are generally ineffective: 0.5% of all users clicking on them.
? Exceptions:
? Rich media ads receive an average 2.4% click-through.
? The Mexican Fiesta Americana Hotels = 10.2% click-through
?By narrow targeting = Americans living in 7 Eastern states + had just purchased an
airline ticket to Cancun + were online 2 to 7 P.M. Monday through Wednesday.
? If users do click, they are likely to buy:
? 61% people who clicked, purchased within 30 minutes,
? 38% purchased within eight to 30 days later.
? E-mail = 3 to 10% click-through to the sponsor?s Web site + an average 5%
conversion rate.
?Catalog companies & retailers realize > 9% click-throughs on e-mail campaigns.
Effectiveness Evidence
? When banner ads are viewed as a branding medium:
? They increase brand awareness & message association,
? Build brand favorability & purchase intent.
? When online ads are bigger + placed as interstitials, or contained rich
multimedia = they delivered an even greater impact.
?Large rectangles are 3 to 6 times more effective than standard size banners in
increasing brand awareness.
? Online + offline advertising work well together.
?The Internet is as effective for increasing brand awareness, brand attributes,
and purchase intent as TV and print?but much more cost-efficient.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Metrics Example
How does a firm evaluates the effectiveness of its Internet advertising buy?
? iGo, an online retailer selling batteries and small electronic devices by catalog
and online.
? Its Internet buy = from a simple text link to buttons, banners, and content
sponsorships at major portals.
? The spreadsheet estimates click-through percentage, conversion to people who
might order, number of visitors that might visit the iGo site from the ad,
number of orders expected, and cost of the ad.
? Effectiveness measures: average order value and more.
? Results: 1/2 million $ in profits + 3.5 million visitors to iGo.com.
? Est. Est. # # Cost @
E-commerce text link
400,000,000 0.20% 0.60% 800,000 4,800 $1,856,000
Shopping Channel
? ? ? ? ? ?
Computing - anchor
8,500,000 3.00% 2.00% 255,000 5,100 $39,440
Computing - sponsor
1,700,000 3.00% 2.00% 51,000 1,020 $7,888
Home page
10,000,000 1.10% 1.50% 110,000 1,650 $46,400
Yearly
Impressions Type Click % Conv. Visitors Orders $4.64 CPM
iGo.com $3 Million Dollar Advertising Buy
Source: Adapted from information provided by Brian Casey, iGo
Variables ?
AOV $140
Incremental Order (annual) 0.60
Gross Margin 0.36
Click Rate 0.54%
Conversion 1.27%
iGo Effectiveness Measures
Source: Adapted from information provided by Brian Casey, iGo
Review Questions
1. What is integrated marketing communication and why is it
important?
2. What is the hierarchy of effects model and how does it apply to high-
and low-involvement product decisions?
3. What is the difference between brand advertising and direct-response
advertising?
4. What are the three main vehicles for advertising on the Internet?
5. What are the advantages and disadvantages of using the advertising
formats of banners, buttons, skyscrapers, interstitials, and
superstititals?
6. What are some ways companies are using the Internet for marketing
public relations, sales promotion, and direct marketing?
7. How does permission marketing differ from viral marketing?
8. List examples of broadcast, narrowcast, and pointcast media.
9. What are the strengths and weaknesses of the Web as an advertising
medium?
10. Identify several ways to measure the Web audience, giving the
strengths of each.
Discussion Questions
1. The more successful list brokers are in selling their lists, the more they dilute the
value of those lists.? Do you agree or disagree?and why?
2. How effective is banner advertising compared with other media?
3. Is there a danger in letting sponsorship blend with content? Defend your position.
4. If you were running an online ad campaign for Nike, how would you allocate your
ad budget? Why?
5. Why would manufacturers invite consumers to search for and print coupons from
the Web? Might this encourage customers who were prepared to pay full price to
simply use the Net to lower their costs?
6. Some U.S. sites draw one-third of their visitors from overseas. Do these users dilute
the value of advertising at these sites? Why or why not?
7. ?You should aim to be consultative not persuasive in the way you use the Internet
for marketing communication.? What does this mean? What is the reasoning
behind this statement?
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Overview of
E-Marketing Communication Issues
? Internet marketing is a powerful way to start and strengthen relationships with
customers.
? But users are in control = marketers must design and deliver brand messages
that capture and hold audience attention.
?Users delete unwanted e-mail + click away when Web sites don?t quickly deliver
desired information or products.
?Consumers can disseminate their attitudes and brand experiences via e-mail and
Web postings.
? Technology for convenience +value-added product experiences = keys to
capturing attention and winning long-term customer relationships.
? Technology lowers the costs: companies spend about $1.17 using automated
Web-based support ($33 with phone, $9.99 with e-mail).
Integrated Marketing Communication (IMC)
? A cross-functional process for planning, executing, and monitoring brand
communications designed to profitably acquire, retain and grow customers.
?Cross-functional
= Every contact that a customer has with a firm or its agents helps to form brand
images,
= An employee, a Web site, a magazine ad, a catalog, the physical store facilities,
and the product itself.
? Online + offline contact experiences need to communicate in a unified way to
create and support positive brand relationships with customers.
?The product experience,
+ Pricing level,
+ Distribution channels enhance the firm?s marketing communication in a variety
of online and offline media to present a strong brand image.
Integrated Marketing Communication (IMC)
? Profitable customer relationships are key to a firm?s existence:
?Not all customers are equally valuable.
?Technology monitor and pay more attention to high-value customers.
? IMC strategy:
? Understanding of the target stakeholders, the brand, its competition, and
internal / external factors.
? Marketers select specific tools to achieve their communication objectives.
? After implementation, they measure execution effectiveness, make needed
adjustments, and evaluate the results.
Marketing Communication Tools
? Consists of both planned and unplanned messages between firms and
customers + those among customers:
? Planned messages = to inform or persuade their target stakeholders.
? Unplanned messages = word of mouth among consumers and publicity in media.
? Impossible for companies to directly manage unplanned messages =
consumers have more control over communication on the Internet.
? Firms concentrate on creating positive product experiences so that unplanned
messages will be positive.
? Internet MarCom from the perspective of the traditional promotion mix:
? Advertising,
? Sales promotions,
? Marketing public relations (MPR),
? Direct marketing,
? Personal selling, face-to-face = inappropriate for use online.
Marketing Communication Tools
? Using technologies, e-marketers can enhance the effectiveness
and efficiency of traditional MarCom with:
? Text / multimedia messages carried via Web pages and e-mail,
? Databases to store information,
? New Web development, browsing, and e-mail software to
facilitate Internet communication,
? Digital receiving devices from PCs to cell phones for viewing
multimedia messages.
Hierarchy of Effects Model
? AIDA model (awareness, interest, desire, and action) or the ?think, feel, do?
hierarchy of effects model guides marketers? selection and evaluation of
MarCom tools for use on the Internet.
? Both models suggest that consumers:
? Become aware of and learn about a new product (think): steps are
awareness and knowledge,
? Develop a positive or negative attitude about it (feel): steps are liking and
preference,
? Move to purchasing it (do).
?E-marketers must select the appropriate IMC tools.
High Involvement Preference Low Involvement
Awareness Cognitive
(think)
Awareness Cognitive
(think)
Knowledge
Liking Attitude
(feel)
Purchase Behavior
(do)
Preference
Conviction Behavior
(do)
Liking Attitude
(feel)
Purchase
Traditional Media Hierarchy of Effects for High- and Low-Involvement Product Decisions
Hierarchy of Effects Model
? To encourage online transactions (behavior):
? Needs more persuasive communication messages that tell how to complete the
transaction on the Web site, over the telephone, and so forth.
? Postpurchase behavior to build customer satisfaction after the purchase:
? E-mail is especially well suited for this goal.
? The hierarchy of effects model helps marketers understand where consumers stand in
relation to the purchase cycle, The firm can select :
? Appropriate communication objectives,
? Strategies that will move consumers closer to purchase and loyalty.
? Some tools are more appropriate for building awareness and brand attitudes
(advertising, public relations) and others are more suited for encouraging transactional
behavior (direct marketing, sales promotions, personal selling).
Branding Versus Direct-Response
? Marketing communication can be used to build brand equity or to elicit a direct
response in the form of a transaction or some other behavior.
? Brand advertising online:
? Put the brand name and product benefits in front of users,
? Works at the awareness and attitude levels of the hierarchy of effects model.
? Direct-response advertising:
? Motivate action,
? Primarily works at the behavioral level.
? Marketers tend to focus on only one type of strategy in each IMC campaign.
? Marketers hope that all communication will contribute to sales in the long run, but
consumers must first be made aware of a product before they will buy it.
Internet Advertising
? Advertising = nonpersonal communication of information through various
media, usually persuasive in nature about products or ideas and usually paid for
by an identified sponsor.
? All paid space on a Web site or in an e-mail is considered advertising.
? Internet advertising parallels traditional media advertising, companies create
content and then sell space to outside advertisers.
? This is confusing, especially when a house banner appears on a firm?s own Web
site.
? The key is exchange: If a firm pays money for space in which to put content it
creates, the content is considered advertising.
Trends In Internet Advertising
? Internet advertising in the United States:
? Began with the first banner ads on Hotwired.com in 1994,
? Reached $1 billion in 1998, grew to $8.2 billion in 2000, and dropped 12.3% in 2001
(economic recession and dot-com bankruptcies).
? Total advertising expenditures in the United States in 2001= $99.8 billion,
compared with more than $400 billion worldwide in 1996.
? In 2001 Internet firms with space to sell only captured 7.2% of advertiser dollars.
? This proportion has remained constant: companies spent 8% of their
advertising budgets in 1999 on the Internet.
? Averages can be misleading?the Internet is an important advertising medium
for particular industries and firms, but not for all.
Trends In Internet Advertising
? Which industries are advertising online? Most ad spending came from the
following product categories in 2001:
? consumer related (30%)
? computing (18%)
? financial services (12%)
? media (12%)
? business services (9%)
? This represents an increase in consumer-related, media, and financial service
expenditures over time.
? Note that retailers comprise 50% of consumer related online advertising.
Internet Advertising Formats
? 3 major vehicles for Internet advertising = E-mail, wireless content sponsorship,
and Web sites:
? E-mail and wireless = text-based.
? Web advertising usually includes multimedia content.
? HTML and multimedia e-mail messages sent from a firm directly to Internet
users are direct marketing, not advertising.
? Most advertising expenditures in 2001 were:
? For banner ads,
? For sponsorships,
? For classifieds,
? For slotting fees,
? For keyword search,
? For e-mail.
E-mail Advertising
? E-mail advertising:
? The least expensive type of online advertising,
? Just a few sentences of text embedded in another firm?s content.
? Advertisers purchase space in the e-mail sponsored by others (e.g., Hotmail).
? E-mail ad are purchased to accompany e-mail discussion among community
members using the former Listbot service.
? Firms sponsor e-mail newsletters such as those sent by eDietShop.
? Many users still prefer text based e-mail due to its faster download time.
Wireless Advertising
? Forward-thinking marketers are closely watching developments in the mobile
device market. PDAs, cell phones and laptop computers have a good
penetration.
? 4 promising marketing communication techniques for mobile devices :
? Free mobile content delivery (marketing public relations),
? Content sponsored advertising,
? 2 direct marketing techniques:
? Location marketing,
? Short message services (SMS).
? Content sponsored advertising for mobile devices = the wireless version of
banners and other ads that sponsor Web content.
? Mobile ads employ the pull model of advertising: users pull content from
mobile Web sites and ads come along for the ride.
Wireless Advertising
? Mobile ads are a new area with great promise and many unanswered questions.
? Current debate: whether mobile users would rather pay for content or receive
advertising sponsored content.
?Users are receptive to mobile ads, 86% said there should be a clear benefit to them.
?64% of respondents said they would not embrace mobile advertising unless they could decide
whether or not to receive messages.
? Several major issues may affect the future of mobile advertising:
? Wireless bandwidth is currently small, advertising content interferes with quick download of
the requested information.
? The smaller screen size of cell phones and PDAs greatly limits ad size.
? It requires different techniques to track advertising effectiveness.
? Most mobile users must pay their service provider by the minute while accessing the Internet
?and many do not want to pay for the time it takes to receive ads.
Web Site Advertising Formats
Web Site Advertising Formats
? Anything goes with Web advertising: text, graphics, sound, hyperlinks, or the
Energizer Bunny hopping through a page.
Interactive Formats
? Banners, buttons, skyscrapers, and other interactive formats occupy
designated space for rent on Web pages:
? Buttons are square or round and banners are rectangular.
? There are standard dimensions for interactive formats.
? The newest look for interactive formats: skyscrapers (160 X 600 pixels), and
large rectangles (360 X 300 pixels).
Three Most Common Banner Sizes: Full Banner, Button 2, and Microbar
Web Site Advertising Formats
? Some observers thought that the industry would eventually standardize online
ad sizes.
? BUT newer sizes and formats break through the online clutter and grab user
attention better than do standard banners.
? Suggested ad sizes to attempt to create industry standards:
? Five differently sized rectangles and pop-ups,
? Seven banners and buttons,
? Two skyscrapers.
Web Site Advertising Formats
? All ads in this category are interactive:
? Click-through to the advertiser?s Web site,
? Some banners sense the position of the mouse on the Web page and animating
faster as the user approaches,
? Built-in games,
? Drop-down menus, check boxes, and search boxes to engage and empower the
user.
? One downside of animated and highly interactive banners is that they tend to require
more bandwidth:
? Ads under 9K in size usually appear before most content on a given Web page.
? The ad is spotlighted on the user?s screen if only for a split second.
? Users may not wait for large banner ads to download, but instead follow a
hyperlink to leave the page before the ad loads.
Web Site Advertising Formats
? With increased bandwidth and high-speed Net delivery to most homes, these
interactive banners may become more important in the future.
? How effective is banner advertising?
? E-marketers should measure results against the banner?s objective to
determine effectiveness.
? Research shows that Web banners help build brands and generate a small
click-through (on average less than 0.5%).
Sponsorships
? Sponsorships integrate editorial content and advertising.
? Most traditional media clearly separate content from advertising,
? Exception = women?s magazines:
? Fashion advertisers get mentions of their clothing in articles.
? It gives advertisers additional exposure and creates the impression that the
publication endorses their products.
?This blending of content by two firms is becoming increasingly adopted by Web
sites = 26% of all Web advertising expenditures.
? Sponsorships are important on the Web:
? Banners are easily overlooked by users,
? More firms build synergistic partnerships to provide useful content.
Sponsorships
? Sponsorships are well suited for the Web because:
? The commercial side of the Web consists of a series of firms clamoring after similar
targets.
? Sponsorships are an increasing source of advertising revenues for Web sites is the
interactive possibilities.
? Candystand Web site, sponsored by Life Savers candy:
? Each link at the site leads to a game sponsored by one of the Life Savers candies.
? Consumers know that this content is brought to them by Life Savers in conjunction
with Candystand.
? Some people worry about the ethics of sponsorships when consumers cannot easily
identify the content author(s).
Slotting Fees
? ?A fee charged to advertisers by media companies to get premium positioning
on their site, category exclusivity or some other special treatment?.
? Special positioning comprises 8% of all advertising formats online.
?Search engines charge for the top few positions in search query return page,
?In the attention economy a better ad or hyperlink position has a better chance of
being seen.
? They parallel traditional print advertising practices.
? It is analogous to the slotting fee charged by retailers for an advantageous shelf
position.
Interstitials, Superstitials,
and Other Rich Media Ads
? Interstitials:
? Java-based ads that appear while the publisher?s content is loading.
? Represent only 3% of all Web advertising expenditures.
? Held great promise when they first introduced, but their number has not
increased for the last few years.
? Why? hard to execute properly + give the impression of lengthening user
waiting time.
? http://www.tripsmarter.com/onlinemedia/newkit/interstitial.htm
? Superstitials:
? Videolike ads timed to appear when a user moves her mouse from one part
of a Web site to another.
? Look like mini videos, using Flash technology and Java to make them
entertaining and fast.
? The advantage: don?t slow page download time.
? http://www.unicast.com/gallery/index.asp
Interstitials, Superstitials,
and Other Rich Media Ads
? The Shoshkele:
? 5-8 second Flash animation that runs through a Web page to capture user
attention.
? The Energizer Bunny was among the first, creating a lot of excitement as it
hopped through and interrupted the page text.
? These ads are enjoyable to some and invasive to others because they can?t
be stopped.
? http://www.unitedvirtualities.com/
? Web technology allows for many interesting multimedia
advertising formats,
?BUT, Marketing communication success is about reaching the right
audience with the right message at the right time.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Marketing Public Relations (MPR)
? Activities that influence public opinion and create goodwill for an
organization.
? Use: create goodwill among different publics:
= Company shareholders & employees, the media, suppliers, the
local community, consumers, business buyers, and other
stakeholder groups.
? Includes brand-related activities and non-paid, third-party media coverage
to positively influence target markets.
? Portion of PR directed to the firm?s customers and prospects in order to
build awareness and positive attitudes about its brands.
? MPR activities using Internet technology include the Web site content
itself, online community building, and online events.
Web Site
? Web sites are MPR tools = electronic brochure with current product & information.
? ? Marketers allocate more resources to online site development than to promoting their Web sites
to increase their profitability. Improving the customers? experience online is now a priority.?
? Although it costs the firm money to create such a Web site, it is not considered advertising (paid for
space on another firm?s site).
? Brochureware = sites that exist only to inform customers about products or services.
? Firms usually include press releases about brands on their Web sites and send them electronically via e-mail
or the Web to media firms for publishing.
? Advantages of using the Web for publishing product information:
? The Web is a low-cost alternative to paper brochures or press releases sent in overnight mail.
? Web page content is always current = Product information is updated in databases.
? The Web can reach new prospects who are searching for particular products.
What do Web Users Want?
What most users want:
? Value.
? Users want quick information, entertainment, or to accomplish other
goals such as buying merchandise at Web sites.
? Information acquisition.
? some people acquire and organize information visually, while others
prefer aural or tactile cues. It is safest to provide information in many
different formats to accommodate all styles.
?Microsoft site allows users to search four different ways! Product
type/ keywords/alphabetical list of products/popular product family.
? Information overload.
? Everyone suffers from this, but it becomes acute when Web surfers
face the plethora of online treasures = good site organization is
required. .
What do Web Users Want?
? Short attention span.
? Users wait 7-10 seconds for a page to download, scan a page
quickly, trying to find what they want, and move on immediately if they
don?t find it = page layout, navigation need to assist users
? Lost in cyberspace.
? It is easy to get lost within or among Web sites. Search tools,
indexes, and good organization of pages and page elements all help.
? Content anywhere, anytime.
? The wireless Web sends content to users with PDAs, cell phones,
and other mobile devices. Firms create special sites for these
devices.
Search Engine Optimization (SEO)
? SEO is unique to the online environment: 47% of Web users said that the most common
way they find products or online stores is through search engines.
? The top 10 results to a search query get 78% more traffic than subsequent listings, many
firms use SEO to be sure their site is high on the list.
? How?
? Register with the top and niche search engines for their industry. Although search
engine robots are constantly looking for new Web pages, registration accelerates
the process.
? Use key words that describe their sites in hidden HTML tags located by search
engines (Meta tags).
? Craft the text and titles on their pages to reflect these topic areas, including
different spellings of key words that users might type into the search engine.
? Remember that many search engines charge a slotting fee for top positions?13% said
they pay for the links or clicks-throughs.
? To stay high on the listing of search results, SEO strategies change almost daily.
Method Percent
Changing meta-tags 61
Changing page titles 44
Reciprocal linking 32
Purchasing multiple domain names 28
Multiple home pages (doorways) 21
Hiding keywords in background 18
Paid links/ pay per click 13
None of the above 13
Methods Used to Improve Search Engine Rankings
Source: Adapted from www.iconocast.com
Community Building
? Sites build community through online chat rooms, discussion groups, and online events.
? Amazon allows users to:
? Write their own book reviews,
? Read and rate the reviews of others.
? Online interest communities
= One of the Net?s big promises that is being fulfilled for users and capitalized upon by
marketers
= For business communities & consumer groups.
Online Events
? Online events are designed to generate user interest and draw traffic to a site.
? Most memorable commercial online event = in 1999 when Victoria Secret held a Web-
based fashion show.
?Announced it in advertisements in the New York Times, Super Bowl football game,
and other traditional media.
?1.2 million visitors, an 82% increase in Web traffic and the firm?s Web servers could
not handle all the traffic. As bandwidth problems disappear, expect more online
multimedia events.
? Companies and organizations can hold seminars, workshops, and discussions online:
? Companies use forthcoming events as legitimate reasons to e-mail potential clients
as well as their existing clients.
? It saves considerable time and cost compared to holding or attending a physical
seminar.
Overview
Overview of E-Marketing Communication Issues
Integrated Marketing Communication (IMC)
Marketing Communication Tools
Hierarchy of Effects Model
Branding Versus Direct-Response
Internet Advertising
Trends In Internet Advertising
Internet Advertising Formats
Marketing Public Relations (MPR)
Web Site
Community Building
Online Events
Sales Promotion Offers
Coupons
Sampling
Contests and Sweepstakes
Direct Marketing
E-Mail
Opt-In, Opt-Out
Viral Marketing
Short Text Messaging (SMS)
Location-Based Marketing
Spam
Privacy
The Internet as a Medium
The Medium Is Not the Appliance
Media Characteristics
Which Media and Vehicles to Buy?
IMC Metrics
Effectiveness Evidence
Metrics Example
Sales Promotion Offers
? Short-term incentives of gifts or money that facilitate the
movement of products from producer to end user.
? Include coupons, rebates, product sampling, contests,
sweepstakes, and premiums (free or low-cost gifts).
?Coupons, sampling, and contests/sweepstakes are widely used on the
Internet.
? In 2004, Internet promotions = 70% of the worldwide $170 billion
dollar promotional market (15% in 1999).
?Online sales promotion works = 3 to 5 times higher response rates than
with direct mail.
?Online tactics are directed primarily to consumers / most offline sales
promotion tactics are directed to businesses in the distribution channel.
Coupons
? Coupons are big business online.
? Coolsavings.com and Valuepage.com are the top two Web sites offering online
coupons delivered via e-mail.
?E-coupon firms also send e-mail notification as new coupons become available on
the Web = to build brand loyalty.
?55% of online users prefer to receive e-mail coupons (30% prefer newspapers and
18% prefer snail mail).
? H.O.T! coupons:
? In the top ten among the many firms offering electronic coupons.
? Provides local coupons (search the database by zip code).
? Postal mailings result in 1-2% coupon redemption, but H.O.T! coupons put coupons
on the Web site + in a traditional mail package.
?When retailers drive customers to the Web site through point-of-purchase or traditional
advertising, coupon redemption increases substantially.
H.O.T! Coupons Distributes Coupons in Most Local Areas
Source: www.hotcoupons.com
Sampling
? Some sites allow users to sample digital product prior to purchase.
?Software companies provide free download of fully functional demo versions of
their products:
?Software expires in 30-60 days,
?Users can choose to purchase the software or remove it from their system.
?Online music stores allow customers to sample 30-second clips of music before
ordering the CD.
?Market research firms often offer survey results as a sampling to entice
businesses to purchase reports.
Contests and Sweepstakes
? Contests require skill (trivia)/ sweepstakes involve pure chance.
? Goal: draw traffic + keep users returning.
?Create excitement about brands & entice customers to visit a retailer.
?Persuade users to move from page to page on a site = increase site stickiness.
?Users return to the site to check out the latest chance to win.
? Orbitz.com entered the market after competitors were well established.
?The site drew 1.9 million customers in its first month because of a huge
sweepstakes featured in radio advertising.
?Every visitor who registered on the site was eligible for the free round-trip ticket
given away every hour, 24/7, for six weeks.
FirstRanker.com - FirstRanker's Choice

This post was last modified on 18 February 2020